Feb 1, 2017
Is a paycheque enough to motivate employees to do their best, or are there other types of rewards that would do the same? These are some of the questions Assistant Professor Kun Huo has been looking at in his latest research on non-financial incentives and performance.
“The question of the study is: can non-financial incentives that are based on accounting information about the performance of individuals serve as a proper motivator for employees, and under what conditions would this matter?” he says.
Huo, a CPA with workplace management experience, says that, when hiring employees, managers focus on professional competencies – the knowledge and skills required for employees to do their job in specialized areas or professions. But new employees with less work experience require training to help them reach a higher level of competency. However, the investment doesn’t always pay off if employees aren’t fully engaged in the training or apply what they learned.
Huo’s research looked at other ways to improve employee performance and engagement outside of financial incentives. He was also interested in finding out whether a particular sector of employees would benefit from non-financial incentives.
To better understand incentives he explains the popular but often criticized model - Relative Performance Evaluation (RPE) - versus an alternative approach - Relative Performance Information (RPI) - used in his study.
Huo refers to Relative Performance Evaluation as a forced ranking system. For example, many of us remember being in school when teachers or professors would read a list of student names based on grades. No one wanted to be at the bottom of the list because it meant your grades were lowest. Students want to hear their name read among the top-ranking performers.
He cites General Electric and Microsoft as examples of companies that used forced ranking based on employee performance – best to lowest. The outcomes were stressful and negative, even to the point of job losses.
Huo’s research is based on Relative Performance Information.
“I take the evaluation part out. There’s no hiring or firing positions based on this. Accounting is about providing information, so an alternative is to provide people with information about how other people - like your peers – top performers are then recognized in public for their achievements.”
For example, in an academic setting you might compare your published research papers to those of your peers. This may motivate you to publish more, benefitting both you and your employer.
One of his research studies took groups and provided them with training prior to testing them on complex puzzles, then provided the participants with information on the best performers. In other studies, no training was done and some groups didn’t get the result comparisons.
The research showed that giving participants both training and information about how they compare to the top performers yielded higher performance as opposed to no training and no sharing of comparisons with their peers. Providing comparisons alone yielded no positive results.
When’s the best time to use non-financial incentives?
“For very junior employees, providing them with opportunity for recognition will not be much help. They should be focused on developing their skills. But for more experienced and skilled employees you need to give them a motivation to apply themselves. Recognition is a useful motivator for these individuals because they want to stand out from the pack.”
Huo comments that many employers feel money is wasted on training because employee engagement is often low. But the results of his studies show that combining training with recognition-based relative performance information may create the beneficial incentive of employee engagement in the training.
“Employers could probably achieve the same results by opting for a cheaper option, through recognition. And for the employee, it actually benefits them because we’re motivated by things that we pay attention to, and what’s on our minds. To the extent that you can satisfy someone’s needs for these social benefits - this recognition - then you don’t have to commit a huge amount of financial resources. It is not always all about the money.”
Huo joined Ivey Business School in the fall of 2015. He was attracted to Ivey because the Managerial Accounting and Control group has a clear strategy of promoting thought leadership through the twin pillars of behavioral and qualitative / historical research. “I have commitment from the school’s administration, physical resources, and like-minded colleagues, those are key elements for developing a successful career.”