3 Reasons Not to Give Employees Cash Incentives…And What To Do Instead

By Bryan Orr

Is it possible that cash incentives can actually work against you? While incentives may do a great job of boosting morale in an instantaneous and temporary way, the long term effects don’t always benefit the employee and/or employer.

The famous “Candle Problem” experiment demonstrated some of the ways in which incentives may actually work against creative productivity. Based on this and many other experiments, as well as my own experience, I have come to conclude that these are some ways in which cash incentives can be damaging:

1. It degrades a person’s work ethic.

While money is definitely something we should expect to acquire in our jobs, I have found that throwing X amount of dollars as an incentive for a specific task creates more of a “leaning on” mindset. The team is waiting for YOU to come up with new ideas and ways to make extra money.

Why not encourage more free flowing thought and allow for THEM to put their ideas on the table and into action?

2. It’s the lazy way out for the employer.

Throwing cash at situations/problems is often one of the easiest things for a leader to do because it makes them feel as if they’re solving a problem quickly and getting everyone on board with their idea(s). They may gain a sense of being in control of the situation simply by pulling out the checkbook.

While it sounds alright and maybe even generous of an employer, it lacks in truly solving a problem or bettering a situation in your business where you’re wanting long-term, quality performance and individual growth of team members.

3. It inhibits creativity.

When cash incentives are given for a performance-based task, our brains enter a “survival” state, and because we’re so focused on acquiring the reward before anyone else gets it, our stress level rises and we enter a known Fight-or Flight Response mode that causes the problem solving and creative thinking area of the brain that functions in the prefrontal cortex to shut down. Performance levels are lowered and it ends up being a lose/lose situation.

Cash incentives certainly do improve focus on a task, but often focus causes the brain to rely on what has worked in the past instead of considering all of the creative possibilities.

How to Reward Your Employees

Rewarding our team members in constructive and beneficial ways is important. There are multiple ways to reward employees that focus on strengthening the team and being genuinely generous:

  1. Provide pay raises: When you have a dependable team member, it’s important that they are rewarded for their performance. Pay raises should be given at appropriate times. As an employer you should be taking the time to calculate an individual and their progress and appreciate them on a personal level, and thus reward them in a real and long term way.
  2. Give some leeway: Give your team members the tools necessary to grow and work out their strengths. It may feel like you’re giving up control when you give leeway to others, but it’s important to allow others to perform in their individual creativity. Obviously you should lay out some broad guidelines (that specify company wide expectations), but then allow for an employee to work out details on their own; they will take on more personal responsibility and work better and harder.
  3. Show gratitude: Genuine encouragement goes a long way. Take a moment to send a personal email or written word to an employee. Showing gratitude with an unexpected gift card and act of generosity builds a mutual appreciation and respect within the company.

Incentives do work in  many cases and they might even make great sense, just resist the temptation to use them in all cases or you may be stuck with with some long term, unintended consequences.

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Bryan Orr
Bryan Orr is a blue collar business owner who helps executives and business owners use storytelling to communicate powerfully with customers and staff. Bryan is a founder of an award-winning small business in Orlando, Fl as well as sought after podcast producer and consultant. Get to know him at Bryanorr.com.

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