Does Incentive Compensation Really Motivate Employees?

Does Incentive Compensation Really Motivate Employees?

Employers know that pay matters, but to what degree can it be used to drive performance? This question has sparked debate among compensation professionals for years. Incentive compensation continues to work for many organizations, but does it truly motivate employees to contribute their best efforts? Let’s find out.

Extrinsic vs. Intrinsic Motivators

To understand whether incentives can truly drive performance, it’s important to understand the difference between extrinsic versus intrinsic motivation. Monetary factors such as bonuses and long-term incentive plans can be given to employees as extrinsic motivators. Yet, research shows that while employees do indeed work for money and value the ways in which they are financially compensated, most also need intrinsic motivators to perform well. Connecting personal values to the organization’s mission and receiving recognition for their efforts are some ways in which employees can be intrinsically motivated.

Striking a Balance

If both extrinsic and intrinsic motivators are useful for engaging employees and driving engagement, how can employers strike a balance among these factors? For most, the answer lies in thoughtful total rewards planning. Employers can establish total rewards programs that reflect the values of the organization, as well as the wants and needs of their workforce. They can offer a blend of intrinsic motivators, such as opportunities for training and career development, as well as extrinsic motivators including bonuses. Doing so can influence specific employee behaviors, help organizations meet their goals, and reward top performers for their contributions.

Making Incentive Pay Work

One critically important aspect of incentive pay is communication. To ensure fairness, employers must clearly define performance parameters so employees know precisely which outcomes are required for reward eligibility. Because incentive plans can also become complex, companies can also implement compensation software for accuracy and efficiency. These tools ensure all calculations and formulas are accurate, helping to eliminate errors in even the most complex plans.

HRsoft is the trusted global leader in compensation management software whose COMPview solution is proven to control and simplify the full process and allocation of merit, bonus and equity awards to drive manager and employee engagement.

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