Since the early 2000s, seminal studies have revealed that employees aren’t actually motivated by compensation and financial incentives alone, although they both help some. But still, most Human Resources managers and learning and development professionals believe that to retain employees and keep them engaged, they must pay them more or offer them more ways to earn or acquire money.
Recent research found that employees are motivated much more by performance-related pay (i.e., bonuses or commissions granted for work achieved) than by profit-related pay (i.e., profit-sharing) and that such financial incentives can generate greater rates of job satisfaction and stronger organizational commitment.
However, performance-related pay is also viewed as a burden to most employees, who just think it manages to overtly intensify the overall work process and make them work harder for no real long-term benefit. And it can end up backfiring and having negative consequences.
So, what can you do to effectively incentivize employees? The answer: Tie financial incentives to employee development.
Offer the Incentive After the Employee has Successfully Completed the Task
Research has indicated that employees are more motivated by opportunities to lead projects or task forces than they are by money alone. So, if you want to effectively financially incentivize employees, offer them a bonus after they have successfully led a project or have demonstrated team-leadership skills.
However, make sure project scopes are within their abilities to achieve so that they don’t end up becoming demotivated. And be sure to offer coaching and learning and development support when and where they’re needed so they don’t feel like they aren’t well prepared.
Include Your Employee’s Manager in the Process
Also, sincerely consider designing a long-term career and development path with each employee, where he or she receives a bonus or an increase in pay each time he or she is promoted or each time he or she reaches certain milestones in his or her development. And make sure employees’ managers are involved, too, providing them with regular feedback and real-life opportunities to practice and demonstrate the skills they’re developing in their everyday work environments.
If employees’ bosses and managers aren’t directly invested in their long-term development, it won’t matter how much money you try to incentivize them with, as employees want and need everyday opportunities to practice and demonstrate their developing skills for those skills to be understood for future real-world application.
Make Sure Managers Offer Praise
In addition, according to the same research mentioned above, the number one thing that motivates employees is praise and recognition from their immediate managers. So, if you want to effectively distribute financial incentives, make sure you distribute them as managers are also publicly praising their employees for a job well done.
For instance, each time an employee works hard and reaches a development milestone and gets promoted, announce his or her promotion and hard work on a public bulletin board or via an e-mail that’s sent out to everyone in his or her department.
Essentially, financial incentives are the most effective for employees when they are tied to what employees really care about: individual development and praise.