Do Financial Bonuses Result in Enhanced Productivity?
Short-term bonuses to motivate employees have become an organizational regularity. But is it the best way to motivate employees?
To explore the effect of incentives, the Center for Advanced Hindsight worked with the tech company Intel to implement a short-term bonus program and measure its impact on worker productivity. We tested three incentive systems: cash, a family meal voucher, and verbal praise.
While all bonus types increased performance by over 5%, the non-monetary bonuses had a slight advantage over pure cash. Most notably, when productivity was measured in the post-bonus period, we saw a decrease in productivity for monetary bonuses – far below baseline productivity – but not for the verbal reward. However, this decrease only occurred when cash was offered as a default option, but not when it was a matter of choice.
Why it matters
These findings offer insights about the effect of short-term bonuses on intrinsic motivation. Managers, executives, and HR departments can leverage these findings in devising and executing bonuses to engage employees.
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