To Motivate Employees, Give an Unexpected Bonus (or Penalty)

Harvard Business School Professor Susanna Gallani notes companies frequently hold "tournaments" based on relative performance to incentivize employees, but how motivated workers are to improve performance may hinge on how fair they perceive them to be, reports Working Knowledge . A study Gallani co-authored determined those perceptions can have a lot more to do with how employees are encouraged than the actual consequences they receive. Given it is impossible to specify how employees' roles will need to expand to meet every contingency, employers rely on employee motivation to exceed the contract and do what is in the best interest of the company. In some instances, tournament incentives are organized so that when some workers succeed, others fail. Gallani says the determination of winners and losers in such a reward system is seldom based on purely objective measures, and to compensate managers often add subjectivity into the competition to even out the scores by weighing factors that might be outside of the control of the employees or contingencies not foreseeable at the time the worker signed the contract. But although subjectivity can improve the performance evaluation's accuracy, it also could be susceptible to bias. Tests showed that employees were more motivated by the feeling of getting an unexpected bonus or penalty than actually getting a bonus or penalty they earned, possibly because they saw it as a result of bias either for or against them by their bosses.