News ID: 138286
Published: 1128 GMT March 16, 2016

Employee recognition programs can reduce firm-level productivity

Employee recognition programs can reduce firm-level productivity

More than 80 percent of companies use award programs like ‘Employee of the Month’ and ‘Top Sales Club’ to motivate employees and increase performance. While the conventional wisdom is that such awards are cheap and can provide a subtle way to motivate employees, these programs might be reducing firms' overall productivity, according to a new study led by a researcher at the University of California, Riverside.

Recently accepted for publication in the journal Organization Science, "Motivational Spillovers from Awards: Crowding Out in a Multitasking Environment" is the first academic study to show that seemingly innocuous non-financial award programs can be costly to firms, primarily because they can upset the status quo and influence perceptions of equity and fairness. This can lead to internally motivated employees becoming disenfranchised. The study was led by Timothy Gubler, assistant professor of management in UCR's School of Business Administration, together with Ian Larkin from the University of California, Los Angeles, and Lamar Pierce from Washington University in St. Louis, Physorg reported.

For years, researchers have studied the unintentional side effects of monetary rewards that tie pay with performance. Such rewards can reduce employees' intrinsic motivation, cause workers to focus less on tasks not recognized financially, and lead to a tendency for employees to play or game the system. Conversely, non-monetary recognitions and small nominal awards like gift cards are widely believed to avoid these unintended consequences and present a costless way to motivate employees.

"The common knowledge is that non-monetary awards can subtly motivate people in ways that are fundamentally different to financial reward programs, such as by increasing organizational loyalty, encouraging friendly competition, or increasing employees' self-esteem," Gubler said. "In fact, past research has focused almost exclusively on the benefits of these programs, and the costs have been considered negligible.”

To explore the potential downsides of award programs, the researchers used field data from an attendance award program implemented at one of five industrial laundry plants in the Midwest United States. With the plant relying heavily on worker efficiency for overall productivity, the program was designed to recognize all employees with perfect attendance — defined as coming on time to work and not having any unexcused absences. Each month, employees with perfect attendance were recognized at a plant-wide meeting, with one person receiving a $75 gift card through a random draw.

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