The Real Impact of Incentives on Performance at Work

What empirical impact do extrinsic and intrinsic motivators have on company performance?

At the core of the psychology of human behavior is the idea that we are incentivized to do things to pursue pleasure (carrots) and to avoid pain (sticks).

But what role do material incentives such as cash, vouchers, and awards play at a time when intrinsic motivators like purpose and growth are influencing the kinds of work people choose to do and the companies they choose to work for?

Incentive Programs Boost Performance

A 2010 meta-analysis conducted the International Society of Performance Improvement (ISPI) found that properly constructed incentive programs increase performance by anywhere between 25 and 44 percent. The same study found that these incentive programs engage participants and help companies attract quality employees.

They also concluded that monetary incentives are twice as effective as non-monetary incentives, which may come as no surprise.

The researchers argued for individual incentives over team incentives, in order to help eliminate social loafing.

They also concluded that incentives increase employee persistence by 27 percent and mental effort by 26 percent on existing tasks.

Conditions for Success

According to the researchers, a properly constructed incentive program accounts for psychological factors that drive human behavior.

This extends to:

• Current performance being inadequate
• The cause of inadequacy performance is due to a deficiency in motivation
• The desired performance can be quantified