Dr. Matthew Davis is a Chartered Psychologist and Associate Fellow of the British Psychological Society. He is currently lecturing at Leeds University Business School in socio-technical systems. He has worked on research projects involving Rolls-Royce, Arup and Toyota and is currently leading an international research network involving academic and organisational partners across Europe, North America, Australia and Brazil exploring how to promote sustainable behaviours by employees. In this interview with LMJ Commissioning Editor Callum Bentley, he talks about the role of reward systems in the workplace, how they affect employees and how they can be properly implemented.

Callum Bentley: Monetary vs nonmonetary reward systems is a hotly debated topic not only in the lean world, but in all forms of management. Let’s begin by looking at reward systems in general. Speaking from your sociotechnical background, how do people respond to any reward system and do you think they can have a positive effect on work performance?

Matthew Davis:
That is an interesting question and I’m afraid that I’m going to give a typically academic reply, in so much as I think it depends on how the rewards are implemented and the wider culture and context of the organisation. Reward systems can be a powerful tool for organisations to signal the types of behaviours and actions that are desired, to reinforce particular working styles, to focus employee attention and to motivate. However, we need to be aware of the organisation as a whole, that is, thinking of it as a system that is made up of many inter-related parts, including technical (IT, facilities, rewards systems, metrics, processes) and social aspects (people, culture, values).

Systems, and organisations, work at their best when they are jointly designed and complement one another. We need to be careful that the introduction of a new rewards system does not upset the balance within an organisational system, in such ways as individually based rewards systems could undermine a previously collaborative culture. People may also react differently to reward systems depending upon how much they identify and value the rewards that are being offered, such as what managers and system designers may believe to be motivational or desirable may not actually be as attractive to employees. For example, the additional effort, training or hassle required to win a cash bonus or employee of the month title may not be deemed as worth it. Whereas for particular groups of workers, a donation to a charity that has personal meaning to them (one that has helped care for a sick colleague) or a say in making a social improvement (funding to set-up a works’ football team or supply of a new coffee machine) may have a much greater motivational effect. Engagement and involvement of workers in the design of any rewards system that takes account of the social and contextual factors involved is more likely to achieve a more effective outcome.

CB: Can you see any potential dangers or pitfalls of rewarding employees?

MD: I think one of the things that we need to be aware of is the potential for employees to habituate to any type of reward system. There is a tendency for rewards to be effective initially, and they can help to drive a change in behavior. However over the long term, their effectiveness can often decline. The danger is that you may need
to continue to increase the level of rewards to keep them relevant and effective. There is also the risk that expectancy kicks in and employees begin to expect the additional rewards as part of their basic rewards package, and it may be difficult to adjust or remove these further down the line.

Dr. Matthew Davis

When you introduce rewards you are essentially altering the psychological contract – the unwritten understanding that an employee has, regarding what is expected of them by the company and what they can expect in return. If you suddenly remove these rewards you are effectively breaching the psychological contract and this may result in counterproductive behaviours.

Another potential pitfall is where rewards are misaligned with organisational goals, desired culture or competences. Systems work best when human and technical systems are aligned, and so we need to consider the wider organisational system when we design any kind of rewards or change programme. Sometimes we can find that what we are rewarding staff for is misaligned with our organisational goals (basing bonuses or additional rewards on speed, quantity produced, sales completion rates, etc.), usually either because they are easier to quantify and measure or because of a desire to control operational costs. However, these can skew employee attention and efforts away from other organisational objectives, such as, quality, customer experience, innovation and safety. We also need to be mindful of the level at which we are setting our goals, targets and rewards. If we are looking to reward project level or collaborative efforts, then the metrics we use and the rewards we offer need to be at the group level as opposed to individual rewards. If we fail to do this, we run the danger of rewarding individual behaviour over group success. Essentially, employees demonstrating their own success and contribution becomes more important than working and supporting others in pursuit of group success.

It is important that employees receive consistency in terms of targets, objectives and rewards. We also need to be clear and transparent in how these targets are measured. If we consider the wider system that the rewards are embedded in, it is also important that we provide the necessary training and support to employees to enable them to hit prescribed targets. This is necessary so that we do not leave people feeling frustrated, believing that they do not have access to the essential opportunities to help them pursue our performance targets. The rewards system needs to complement and reinforce the social structures and organisational goals that exist, together with being supported by the training and development opportunities within the system. A sense of fairness and supportive culture by management is necessary to reduce potential internal conflicts or tensions between staff.

CB: Do you believe there is one system (monetary v non-monetary) which is more effective than the other? And why?

MD: I think that they both have their place and that monetary rewards may be particularly effective in bringing about immediate short-term changes in behaviour/motivation. But there also needs to be something else to complement them to ensure that increases in performance or changes in behaviour are maintained over the longer-term. There is always the danger that when novelty wears off, or employees have become used to particular rewards that they fall back into previous habits or behaviours. We need to break habits initially and then look to reinforce this over the longer term with a range of different benefits or recognitions.

CB: What are the potential pitfalls you can see in both of these systems?

MD: Any type of rewards system can result in unintended consequences. This can include rewarding particular types of results/rewards driven behaviours possibly at the expense of others (speed over quality, short-term gain over longer-term value, selfish behaviour vs collaboration). There is always the likelihood that when you introduce explicit metrics and reward systems that people learn how to game the system and the motivational, behavioural or performance gains that were desired are lost as people become better at hitting their targets without engaging in the tasks that we hoped they would. In academia we can see this in terms of researchers looking to target “easier” journals to publish in, or citing their work repeatedly to increase the number of publications or citation rates that are explicitly counted/valued by their institutions. The metric goes from indicating impact and readership, towards just meaningless numbers.

I believe that there is an argument for increasing the emphasis upon qualitative judgements of performance and management discretion in providing rewards when they feel there has been exceptional performance or effort displayed, as this kind of human judgement can be much more sensitive to the spirit of the rewards system and the value of individual contributions. Alternatively, there is an argument for making greater use of peer feedback within rewards systems, to help reward under-acknowledged individuals who contribute greatly through team work, technical support or other behaviours that may not be picked up using more quantitative performance metrics.

CB:  Do you believe there are other ways employers and management can motivate staff without giving them something extra than their weekly pay packet?

MD: Certainly, there are a range of techniques that we can draw upon to help motivate employees and maintain their interest without necessarily having to use monetary rewards. From a socio-technical perspective, one of the most relevant is providing employees with a greater sense of autonomy over their work and broadening their roles. There’s a great deal of academic work that has demonstrated the value of so called “semi-autonomous work groups”, essentially whereby workers are provided greater opportunity to organise how they go about their work, share leadership responsibilities with others in their work groups, engage in a broader range of work tasks (carry out a range of related tasks as opposed to performing a single narrow task) and are given greater opportunity to innovate processes. These principles can be seen to play into the development of a greater sense of ownership over the work carried out, provide an opportunity for employees to develop broader sets of expertise, can reduce staff turnover and have been linked to improved quality outcomes. Essentially providing employees with the opportunity to craft a more satisfying and engaging work experience can produce motivating effects and increase overall job satisfaction.

We also need to consider the social comparison effect – that is, the evaluations and comparisons that we all make between ourselves, our own performance, successes, rewards, recognition and that of others around us. Psychological research demonstrates that beyond a certain point, additional monetary rewards and salary have limited impact. However, whether or not we feel as if we need to be paid more, if we see others receiving higher pay or higher bonuses than ourselves then these social comparisons and a need for equity can lead us to become dissatisfied with our own pay – even if this is at a comfortable, or what we previously considered an adequate level. Essentially we can become dissatisfied not because we are underpaid, but because we see colleagues as overpaid in relation to their performance, and the need for equity demands we try and make this fairer to ourselves. Monetary rewards may make these comparisons easier and more explicit.

Looking at other forms of rewards like management recognition, praise, employee rewards, additional responsibilities, or greater autonomy, may all help to avoid some of the direct comparisons between coworkers being made so easily. They also enable a more personal dialogue between worker and manager to be conducted and satisfy human needs to receive both recognition and status – both of which can be powerful drivers of behaviour.

We can also look to goal-setting principles as an effective way of increasing motivation and effort towards specific targets and goals. We have seen that involving staff in setting their own specific, challenging and significant goals, coupled with frequent, high quality feedback on performance against these goals can increase performance across a range of behaviours and work environments. The key here is finding ways of making employees care about the targets and performance changes that we are interested in achieving. This could involve something as simple as; what does increased performance mean for staff, how can it benefit them; putting processes, mechanisms or technologies in place to feedback performance to staff quickly and at an individual level so that they can see the positive or negative results of their actions against their goals.

CB: Do you think reward systems have instilled a culture within companies and organisations where employees have come to expect more from management than just their weekly pay packet?

MD: I think this a very real danger of any rewards system, whether monetary or nonmonetary. When we are providing rewards for particular actions, people can become conditioned and expect these rewards to be present. A great example of this is in the financial sector where we see a culture in which bonuses are expected and often demanded regardless of corporate performance. The bonuses become so expected that they are essentially considered a part of base pay and people may feel as if they are being denied something they are entitled to when they are not rewarded. This may be another argument in favour of operating less structured, more one-off and group based rewards, such as a new coffee machine, rather than ongoing and predictable rewards.

CB: What are some of the ways management could remove this type of culture from the workplace?

MD: Culture and organisational change are huge issues in themselves. Socio-technical systems thinking regarding managing change would suggest that the involvement of workers in helping to identify problems and solutions would help to achieve acceptance of culture change. In general, engagement and communication would be key, particularly in explaining why it is important that changes are made to the rewards system and laying out the vision of where the company wants to get to and how the proposed changes would support this and how this may benefit the workers (greater job security, less pressurised environment, etc.).