Brains Trust: The easy way companies waste money and demotivate their employees

Employee-of-the-month schemes are a perennial favourite of the cash-strapped manager looking for a cheap way to boost productivity.

After all, the thinking goes, who wouldn’t love to bask in the glow of corporate approval?

But such programs can work to de-motivate as many employees as they motivate. And when researchers at the Harvard Business School took a close look at one such company program, they found it actually reduced total productivity by 1.4%.

Harvard Business School’s Ian Larkin, along with Lamar Pierce and Timothy Gubler from the Olin School of Business at Washington University, took a close look at an attendance reward program initiated by the managers at a commercial laundry. The company owned four other laundries which didn’t initiate the program. They served as useful control groups.

Tardiness had a big impact on the laundry, the researchers wrote in their working paper. Laundries operate on an assembly line, so if one team falls behind in doing its role, all other teams are impacted.

So from March 2011, the managers at the plant initiated a nine-month attendance award program. Employees who kept up perfect attendance all months entered a draw to win a $75 gift card. Employees with six months’ perfect attendance went into a draw for a $100 gift card.

At first, the program seemed a success. The workers who participated began to arrive on time.

But after a few months, the researchers found some troubling evidence that employees were ‘gaming’ the program. More employees began to call in sick, perhaps to avoid being marked down as late.

And once an employee was late once, and thus no longer qualified for the draw, they were late more often than they had been before the program was started.

With such awards, managers hope to build positive habits, Larkin told Harvard Business School Working Knowledge. “But we can say it’s the exact opposite. There was only a change in behaviour while people were eligible for the award.”

The most detrimental impact of the award though was how it was seen by employees who were highly productive before the program began. Their productivity declined 6-8% on average when the program was introduced.

The researchers did a few interviews to find out why. It turns out productive employees thought the program was unfair. They’d been showing up on time before the program, and didn’t like to see previously tardy colleagues suddenly being rewarded for their supposed punctuality.

Add these effects up, and productivity decreased by 1.4%, the researchers concluded.

“Our paper shouldn’t be taken as a blanket criticism of awards,” Larkin said. “You can’t say awards are good or bad. It depends on how they’re implemented.”

He said that the award program at the laundry plant may have been flawed because it rewarded a basic job requirement, rather than exceptional behaviour on the part of employees.

He also added that good awards should recognise past behaviour, rather than behaviour going forward.

And if companies really want to recognise their employees, a bit of encouragement is less likely to backfire.

“The recognition of hearing you did a good job and that others are hearing about it is worth more than money,” Larkin said.