Is it time to stop giving your employees incentives?

staff incentiveThere’s a school of psychology that says we only ever do anything because of incentives: without incentives we wouldn’t be productive and we wouldn’t achieve anything. This school of thought suggests that our human nature is purely self-interest.

It only takes a second or two to realise that this isn’t strictly true, so if we’re not all purely self-interested should we stop giving, and receiving, incentives at work?

After all tens of billions of pounds are spent every year on bonuses and incentives to encourage employees to improve their productivity and performance and if we stopped giving it would impact the bottom line.


Why incentive schemes SOMETIMES don’t work well

There are two types of motivation: intrinsic motivation and extrinsic motivation. If you are intrinsically motivated it means that you are motivated to do something by the thing itself, you are motivated for your own reasons. If you are extrinsically motivated then you are motivated to do something because of external factors, such as a threat or an incentive.

As human beings we are motivated to avoid a threat and pursue a reward. Incentive schemes build on that by challenging people to up their performance in order to receive a reward, and there’s no doubt that this works in organisations across the globe.

And here’s the ‘but’.

But if people are only extrinsically motivated then they will only do just what is needed to get the reward, and then go no further. Does this mean that the act of offering an incentive to achieve a result can, over time, destroy people’s motivation for doing a good job because they find the work interesting or valuable?

Studies argue that over time employees’ effort levels and commitment start to fall and as a result business productivity and performance suffers. To improve things businesses offer bigger and better rewards, and for a while this works, but then the cycle starts to repeats itself. They argue that by only using incentive schemes to motivate their employees the organisation has destroyed their employees’ intrinsic motivation.


What’s important?

I believe that the problem isn’t the incentive scheme but how businesses using it. They focus purely on extrinsic motivation and don’t consider employees intrinsic motivation; they forget about motivation factors such as offering challenging work, providing opportunities for career progression and personal development, enjoying the work we do, relationships with our colleagues and being treated fairly by managers that encourage us to improve our performance.

The problem is there is no simple answer, no magic bullet, businesses need to consider both intrinsic and extrinsic motivation. Incentive schemes are a key part of the solution to improving employee motivation and performance but stand alone they are not the entire solution.

What is important is understanding your employees and knowing what makes them tick. But this means getting to know your employees on an individual basis: you can’t group employees as one job lot because after all we’re all motivated by different things. Once you know what make each individual employee in your team tick then you can develop individual plans to motivate them, this might include things such as:

  • Giving regular feedback
  • Helping them/coaching them with their career development
  • Listening to your employees’ ideas
  • Recognising success and behaviours consistent with the organisation’s values
  • Incentivising them to reach challenging targets.


Why it isn’t time to ditch the incentive scheme

Staff motivationThere is an argument that by stopping incentives the business would save money and improve their bottom line. Several studies show that incentive schemes deliver a significant return on investment – provided they are properly planned, implemented and communicated. In other words offering an incentive scheme improves the bottom line much more than the savings made by not offering a scheme would.

Plus if you were to stop offering your employees incentives then their performance levels would fall and they would probably be looking for a new organisation to work for, which would increase recruitment costs, reduce productivity and reduce morale. Which is not good for your bottom line, nor will it help you achieve other goals and targets.


It’s certainly not time to stop giving your employees incentives. So rather than ditch your incentive scheme, make it your mission to understand what motivates your employees on an individual basis. Get to know their individual needs, wants and aspirations, and create an incentive scheme that fits in with your business vision and goals. Consider both intrinsic and extrinsic motivation and you’ll have a happy and motivated workforce willing to go that extra mile.


John Sylvester

John is responsible for the motivation division of p&mm ltd and a Director on the board of the IPM. Specialising in developing, implementing and directing many large scale staff motivation, recognition and employee communications programmes.
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  1. I agree with John’s recommendation of applying both intrinsic action and extrinsic rewards to encourage employee performance. I find few clients that effectively attend to staff knowing precisely what is desired of them, possess all the necessary resources and really want to deliver to the highest possible extent. Attempts to turn up the wick on ‘want to’ by offering extrinsic reward while job satisfaction is lacking are bound to achieve less than optimal results. Conversely, it is important to meet expectations of increased remuneration flowing from increased performance, which is where a well planned scheme carrying alluring extrinsic reward comes in – and whatever its nature, an incentive reward IS a form of remuneration.
    Incentives aimed at improving performance of independent organization staff are of course a totally different matter. Here the intrinsic is limited to supporting efforts to earn the extrinsic, pure & simple.

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