How Incentive-Based Performance Reviews Are Ruining Your Business

by Sabrina Son on Apr 21, 2015 8:00:00 AM

iStock_000007316045_SmallYou’ve probably used this strategy before: If a salesperson meets a monthly sales goal, they get a monetary prize. It sounds like a great way to kick employees into high productivity gear, but statistics show that incentivizing performance reviews and goals doesn't increase productivity — it can actually create perverse employee behavior. Then you have an army of workers focusing on their own goals rather than the goals of the company.

According to HBR and Hewitt Associates:

  • 71% of companies ranked employee engagement as very important to achieving overall organizational success, but only 24% said their employees are highly engaged

  • 67% of companies said “individual staff goals aligned with corporate goals” had a positive impact on employee performance

  • Just 17% of respondents said their workforce strategy is consistently aligned with their business strategy across the organization.

These stats show us that managers know aligning employee goals with company goals can increase engagement, but they’re not doing it, instead relying on incentive-based performance reviews. Further, they know that high employee engagement means high performance. And yet, these numbers show it’s just not happening enough in the real workplace. However, it’s not impossible to fix.

Works Needs to Have Meaning

Incentive-based performance goals put the entire focus of a job onto winning an iPad or a check. All work is done merely to meet this one goal and winning a reward, according to Psychology Today. But many employees don’t just want a one-time reward to stay happy and hardworking in their job  they want to take pride in their work.

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A study from McKinsey showed that money is not the effective motivator we always think it is. In fact, employees would rather have increased accountability, responsibility, and more chances to lead teams than any one-time reward. In short, they want to be acknowledged for a job well done. These recognition protocols are not one-time things. They need to be embedded in the company culture. They need to tell employees, “What you’re doing matters.”

What this means is that employees want to value their work and their company, and be valued in return.

No Employee Is an Island

To truly value their work, employees need to know where they stand. This is where aligning employee goals with company goals comes in.

Remind your employees that none of them is an island; the workplace is a community of people working to achieve the same goals, and their role is a crucial one. Define your company objectives and break them down, all the way from the CEO down to the interns. Consistently reinforce how day-to-day and month-to-month missions are linked with this overall strategy. As a team, you’re all actively contributing to achievement.

In the above Hewitt study, a whopping 83% of companies are not doing that. And you know the results: disengaged workers who feel they’re being overwhelmed with busywork that doesn’t matter.

Incentivizing employees in performance reviews may seem like a great way to engage workers while boosting productivity, but always remember that money is not the bottom line.

 

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This post was written by Sabrina Son

Sabrina is the managing editor for the TINYpulse blog. A Seattle native, she loves her morning (or anytime) coffee, spending her weekends on the mountains, and of course, the famous rain.

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