Should You Use Monetary Incentives?

Should You Use Monetary Incentives?

This article was updated on July 5, 2018.

You need your employees to come out every day and perform at their best. A workplace competition with monetary incentives can be a powerful motivator for them to do so. However, it's important to be careful because you don't want the competition to prevent your workforce from collaborating on shared goals.

To find the right balance, here are a few points to consider.

Does Competition in the Workplace Help?

Competition in the workplace has pros and cons. When employees are rewarded for achieving their goals, they can become more motivated and likely to put in extra effort. On the other hand, competition can create extra stress leading to frustrated employees and potentially higher turnover. It can also create an atmosphere where employees are only focused on their own individual performance and not on the bigger picture, which is collaborating with others for shared business goals. According to NBC News, has an intense ranking system to enhance employee performance, but it could actually be hurting morale and driving away millennial employees, who are more collaboratively minded. This is partly why Microsoft dropped its own ranking program, per NBC News.

Where Monetary Incentives Create Trouble

Monetary incentives definitely motivate people to work harder, but with the wrong design they can also discourage your workforce. For example, say you create a system where the top 10 percent of your salespeople get a monthly bonus. Of course that's going to motivate people to try harder. However, the salespeople who miss the goal on a regular basis could get frustrated, which isn't good for your long-term results. After all, these employees are still contributing valuable sales even if they fall just short of the bonus. It's important to avoid this type of winner-take-all competition.

Designing Effective Competition

A more effective system encourages employees to compete against their own performance. For example, you can offer financial incentives when employees make improvements against their average historic performance. You can also create prizes that reward a group for hitting a shared goal. This way you keep your collaborative environment while still giving employees more of a push. When you use this type of competition, make sure to set a clear goal and publicly track performance. This gives employees a way to measure their progress and can be extra motivation to not let down their peers.

Expectations for Different Departments

How you set up competitions should also depend on the departments. Monetary incentives for monthly results make more sense for sales than for PR. Employee preferences also make a difference. You could try polling your employees to gauge whether they'd prefer more pay-for-performance incentives. For departments where regular competition isn't appropriate, you could still have annual performance goals with a nonmonetary prize for success, like an office party. This adds motivation without the intense pressure of monetary incentives.

It also helps to have shared competitions between departments. For example, marketing has a major impact on your bottom line even though this is commonly seen as a goal for sales. You could offer a shared prize for both departments if they hit your annual revenue target. Not only does this add motivation, it also improves communication across different departments.

Measuring the Effectiveness of Your Program

When you launch incentive programs, you should track your progress using data against a clear benchmark. Are you trying to increase sales? Improve customer satisfaction? By clearly identifying what you want accomplish, you can track whether your program is working effectively. You could also use employee surveys throughout the year to see whether they approve or would like to adjust any parts of the program. Finally, keep an eye on your turnover figures. If they start to creep up, it could be a sign that the competition has gotten too stressful.

Finding the balance between competition and collaboration isn't easy, but by following these tips you should be able to develop an effective incentive system for your organization.