Meaningfulness is a key theme that has come out of recent analysis we’ve done on incentives and their impact on employee behavior. Many organizations put tremendous resources—from complex performance management systems to detailed pay guidance provided to managers—into ensuring that fine-grained differences in employee performance are reflected in differentiated rewards on the back end. But what we’ve found across different employee populations (sales and non-sales, junior and senior), in different parts of the world, and across different compensation and reward vehicles, is that fine-grained distinctions simply don’t matter. To encourage employees to make outsized contributions to their organizations, rewards must, most of all, be meaningful.
Three examples illustrate the importance of this theme:
The first is about differentiation. When we analyzed the impact of differentiation on employee performance, we found that small differences had little effect. Take bonus payouts as an example: Bonus payouts for high performers need to be at least 50 percent greater than the payout for the average employee to have any meaningful impact on employee behaviors. Anything less than that simply isn’t perceived as meaningful by the recipient.
Second, many organizations are supplementing their traditional bonus systems with programs that allow managers to provide employees with additional rewards for specific activities. These programs have the advantage of a more immediate payout, and in theory create a stronger link in the employees’ minds between actions and rewards. But here again, there’s an important meaningfulness threshold organizations need to cross for the reward to have much of an impact. In the analysis we did, rewards valued at less than $100 had little impact on employee behavior, and organizations realized the greatest marginal improvement in value by increasing rewards up to and just slightly beyond that $100 threshold. Interestingly, marginal returns decrease quickly beyond $100, indicating that the power of the reward comes from giving employees something they can perceive as meaningful, more than the absolute dollar value of the reward itself.
Finally, we looked at the impact of workplace recognition programs. The fascinating finding here, across several years of data, was that recognition had a much greater impact on senior employees than junior employees. I believe this comes down, yet again, to meaningfulness. The large majority of organizations’ recognition programs are aimed at engaging more junior staff. As you get more senior in the organization, there’s often an unstated assumption that you’re driven more by ambition, salary, etc., than by praise. But in fact, because opportunities for recognition are so much rarer at senior levels, recognition becomes more meaningful when it happens.