2.5 Rewards
2.5.3 Negative Incentive System Consequences
Incentive systems have are often noted to exhibit negative consequences as listed below:
i. The “do only what you get paid for” syndrome
To avoid the accusations that remuneration is given on the subjective judgements basis or favouritism, pay-for-performance methods tend to rely on objective pointers for accomplishment. This leads particular managers using whatever “objective” data is available in justifying decisions to pay. Regrettably once the pay is closely tied to particular indicators the more employees start focusing on those indicators disregarding the more difficult to measure components that are nevertheless essential to the job (Mejia et al., 2004). To combat this, Hunter (2012) suggests that employees should rather be rewarded for the achievement of learning goals, which results in their motivation to continue to learn and improve their skills, thereby enhancing their performance as well. This ideally would have the effect of continuously improving the employees’ skillset while giving them motivation to achieve high levels of performance. Ryan & Damberg (2013) caution that performance based incentives are initially effective for the lower performing employees compared to the higher performers, meaning it can have a short-term induced effect.
ii. Negative effects on the spirit of cooperation
In some cases performance based pay may discourage corporation while conflict and competition reign. For example, an employee may choose to deprive a colleague’s information once they believe assists the other person progression. Those earning lower than they deserve may “get back” at those who are believed to be getting more through sabotage or rumour spreading (Mejia et al., 2004). This is concurrent with Hunter (2012) who suggests that recognition is a very important aspect that employees value as a supplementary form of reward.
However there can be some positive effects on the spirit of cooperation and teamwork. It is crucial that managers therefore congratulate all employees who manage to complete tasks,
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reach targets or surpass training objectives, especially in the form of formal recognition as it has a strong inspirational effect on the rest of the workforce (Hunter, 2012).
iii. Lack of control
Employee performance control factors may not necessarily be controlled by themselves. This is supported by Armstrong and Baron (1998) who point out that the justification of individual performance assessment is dependent on the support degree provided by management and as well as the organisational systems and processes made available to them by management.
These are factors that are beyond the control of an employee yet they adversely affect the employee’s performance at work. Among the aspects that are beyond an employee’s control are the material quality the worker is engaged with, conditions of work, the performance of other team members, the supervisor besides the working environment (Mejia et al., 2004).
iv. Difficulties in measuring performance
Assessing employee performance is one of the more complicated functions of management, this is so when in particular the assessments are being used in rewarding employees. Armstrong (2009) identified measuring the performance for reward purposes as complex and emphasised that it requires the process to be transparent, consistent and fair. Various measurement ratings systems have been discussed along with their pros and cons. Managers are faced with the challenge of having to justify why a certain employee qualifies for receiving a reward while the other employees do not. These disparities are often sources of great conflict and can lead to labour relation catastrophes that are difficult to remedy. It is more desirable to have a transparent system that justifies the assessment based on clear information, and the employees should have the ability of contributing an evidence used to inform the process (Armstrong 2009). This caution is also observed by Mejia et al. (2004), who express that precise measures of performance are not easily achieved and attaching pay to erroneous measures creates problems, which further underlines the importance of appropriately measuring performance.
39 v. Psychological contracts
Once implemented, performance based pay systems create psychological contracts amongst the worker and the organisation. A psychological contract is made of prospects based on prior experience, and as such there is a change resistance. Psychological contracts may result in employees feeling entitled to the reward stipulated in the performance based pay plan and when conditions necessitate change, it becomes difficult to change the plan. Hunter (2012) explains that employees can develop “standard expected rewards” that they assume to receive after task completion because of a previous reward. It is also at times difficult to arrive to a single formula that is considered fair to employee groups that are very diverse (Mejia et al., 2004) meaning this is a key challenge for rewarding performance.
vi. The credibility gap
Workers do not normally believe in the fairness of the performance based pay programs or that they actually reward performance; an occurrence known as the credibility gap. Certain studies have indicated that as many as 75 percent of a normal firm’s employees have questioned the reliability of performance based pay plans. Once the employees are questioning the legitimacy of the system, it may then not have positive but negative effects on their behaviour (Mejia et al., 2004).
vii. Job dissatisfaction and stress
The performance pay systems can lead to greater productivity, yet with all that the satisfaction of the workers will be low. Certain research has suggested that once pay is attached to performance, the more work units begin to be uneasy to perform and the more dissatisfied the workers will be (Mejia et al., 2004).
viii. Potential reduction of intrinsic drives
Performance based pay rewards can push workers in doing whatever it takes in obtaining the reward and yet in the process suppressing their talents and creativity. Therefore an organisation that places greater prominence on pay in influencing behaviours may inadvertently lead to the reduction of employees’ intrinsic motivations. An expert argues that the more an organisation
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emphasizes pay as high performance incentive, the less possible for workers getting engaged with activities that benefit the organisation (such as overtime and extra special service) until and unless they get a reward promise. This literature confirms that people are different and are thus motivated by different things. Therefore organisations must design rewards programs that are both financially and non-financially rewarding. Hence even when organisations use performance based pay programs, the focus should not be only on monetary rewards, but also in recognition (Mejia et al., 2004).
The above literature indicates various negative consequences that can be caused by pay for performance (incentive systems) within an organisation. It has been stated that pay for performance systems may discourage cooperation and create conflict among employees. They may also result in dissatisfied employees who are not ready lend a helping hand to the organisation because their focus will be more on the specific performance indicators that are rewarded. Therefore, the organisation that uses such a system must be mindful of the limitations and search for effective ways to deal with problems that might arise.