- Study suggests that incentive-based pay can make employees more committed to their job, but also cause them to prioritize their work over their social life
- Such a pay model can come with a higher risk of employee stress and burnout, which can inhibit productivity
- Authors suggest that business leaders need to strike a balance between incentives and recognizing employees’ personal lives
Summary by Dirk Langeveld
At first glance, performance-based bonuses seem like a win-win strategy. The incentive helps drive an employee to be more productive, and they in turn are rewarded with some extra cash.
However, recent research by Ashley Whillans, an assistant professor at the Harvard Business School, suggests that incentive-based pay can also backfire. Employees who can pursue such compensation are more likely to dedicate greater amounts of time with co-workers and clients, spending less time with friends and family. This, in turn, increases the risk of stress, burnout, problems in their personal lives, and ultimately decreased performance.
- The research found that those who receive performance-based bonus spent 3 percent more time with co-workers and clients and 2 percent less time socializing with friends and family compared to those earning a fixed salary; this was the equivalent of eight extra days per year spent with work colleagues instead of socially
- One experiment of 545 people, half of whom were paid a fixed salary and half of whom had incentivized income, found that the latter group was as much as two-thirds more likely to attend happy hour drinks with co-workers rather than a birthday for a friend
- Incentivized employees were also more likely to dedicate time to extra projects and see spending time with their colleagues as being crucial to their success
- About three-quarters of companies currently offer some sort of incentive such as commissions, bonuses, or stock options
- Whillans recommends that companies seek to strike a balance in motivating employees but not intruding on their personal lives, especially as people have already been working longer hours during the COVID-19 pandemic
- One option is to offer non-monetary awards such as extra vacation days or gym memberships
