Incentives to improve employee performance, attendance, commitment

Something to think about.

In his recent book, Mixed Signals: How Incentives Really Work, economist and University of California-San Diego professor Uri Gneezy examines how incentives of various kinds can and do modify behavior in a variety of contexts.

Employment is one of the contexts in which incentives have particular application. 

Here are three strategies for consideration by employers based on the concepts discussed in Professor Gneezy’s book:

1. Consider paying bonuses in advance to improve performance. This proposal takes advantage of loss aversion, which refers to people's sensitivity to losing something they already have as contrasted with gaining something new of the same value.

Consider two scenarios. In the first scenario, an employer has a policy of paying employees an extra $1,000 at the end of the month if they construct 100 widgets in that month. In the second scenario, the employer pays the $1,000 bonus at the beginning of the month and informs the employees that if they do not construct 100 widgets in the coming month, the $1,000 bonus will be forfeited and their future pay reduced accordingly.

Research has shown that the second scenario results in better performance. Employees will work harder to avoid losing something they already have versus gaining something they do not have.

One major risk of this approach is a resignation shortly after the employee receives the upfront bonus. The employer might be able to deduct the bonus from any regular amounts still owed to the employee. To the extent that such an offset is not fully available, expected losses would need to be weighed against the expected increases in productivity.

The other major risk of this approach, obviously, is violation of applicable wage-hour and wage payment laws in recouping a "forfeited" bonus. Any employer adopting an “up-front incentive” policy should consult in advance with qualified wage-hour counsel.

2. Consider lotteries to get employees to work in the office. Lotteries can work in a variety of ways. The most common is that people buy lottery tickets for a chance to win a pot of money. The more tickets you buy, the better your odds.

Such programs could be used to encourage employees to work in the office more regularly, an increasing issue of concern for employers. The simplest approach would be to award tickets to employees for each day that they come into the office. At the end of a week (or other time period), one or more tickets would be pulled for a prize of some kind. The more days employees spend in the office, the more likely they are to win the prize.

Then there is the “lottery with regret.” In this scenario, every employee’s name would be entered into the lottery. At the end of the week, a name is publicly pulled to determine the winner of the prize. If the employee whose name was pulled had not spent a sufficient number of days in the office that week (perhaps three days), their name would be thrown out and a new name pulled until a qualifying winner was determined. In this scenario, an employee who misses out on the prize will theoretically regret not having gone to the office three days that week. (On the other hand, the employee may elect to work from home on drawing day, knowing that he or she is not going to win anyway.)

There are four principal concerns with the lottery concept. First, the prize must of course be less than the expected boost in revenues from improved production. Second, employers must account for employees unable to come into the office due to a disability or for other reasons requiring reasonable accommodation. Third, with the “lottery with regret,” there may be employee relations implications if employees who work remotely perceive that the employer is trying to “shame” them in front of their colleagues. Fourth, many states have laws governing lotteries, so employers should make sure that their proposed lotteries do not violate any applicable laws.

3. Consider paying employees to quit at key moments. Professor Gneezy’s book recounts how Zappos, Amazon, and Riot Games have used the “pay to quit” strategy to promote a motivated and committed workforce. Every once in a while, these companies would offer their employees a few thousand dollars to quit. The point was to weed out the employees who were noncommittal and retain those most motivated to make the companies successful.

This approach might be especially effective when there is a major shift in strategy, product, or process. Some employees may be opposed to the changes but uncomfortable with expressing their views. Thus, it may be opportune at these times to incentivize the demoralized or skeptical employees to leave and to ensure that those who remain are committed to the new approach.

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These proposals of course will not work for all companies, and their success or failure will vary depending on a wide range of factors. But they are worthy of consideration.

Robin Shea has 30 years' experience in employment litigation, including Title VII and the Age Discrimination in Employment Act, the Americans with Disabilities Act (including the Amendments Act). 
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