Incentive pay does not motivate better performance over time.  An interesting hypothesis, don’t you think?  My partner recently posted on his blog regarding this idea and the evidence behind it.

The idea is predicated on research showing that the difference in performance between people who receive incentive pay and those who do not is statistically insignificant.  The writer further probes the stimulus response concept behind Pavlov’s dogs and other experiments; and suggests that incentive pay is nothing more than a dehumanizing stimulus response tool.

My first reaction was to dig in my heels and disagree.  Much of my business education has been focused on incenting better performance.  I’ve experienced what appeared to be a very successful incentive pay and profit sharing system with a previous employer.  But the more I thought about it, the more suspicious I became that the real motivation in that organization was generated by the way people were treated and the extent to which their values, personal mission, and behaviors were shared throughout the organization.

The company had a business philosophy, mission, and set of values that focused on people, whether they were employees, customers, vendors, or the community as a whole.  The employees felt part of something bigger and more important than themselves; they felt they were making a difference in the lives of others.

The business put on a human face, both internally and externally.  Its leadership team shared a philosophy of servant leadership that was demonstrated by the owners and propagated throughout the organization.  The family owners had defined its vision, values, and purpose in a way that focused on filling human needs.  The result of living out this culture within the organization was a team of happy employees, strong vendor relationships, good community relations, and an extremely high level of customer satisfaction.  The company was rewarded with sustained profits even in tough economic times.

Did the incentive pay program make that much difference in the result?  Well, a study was never done, so we don’t really know.  What we do know, at least anecdotally, is that the employees viewed the incentive pay program as more of a reward for the company’s success in achieving its purpose and goals each year than as a program that inspired them to perform better.

In the end I found myself agreeing with the author and my partner, incentive pay does not motivate better performance over time.  So what does this say about the use of incentive pay programs?  My suggestion is that, if you decide to start or continue using them, they be recast as profit-sharing rewards for achieving the company’s goals and purpose, an approach consistent with my business philosophy.

The true lesson?  Make your business a ministry to others.  Keep your organization people centered and servant led.  Maintain high standards and values; develop and maintain integrity and character, and keep your purpose as an organization focused on filling needs.  Take care of your customers, vendors, employees, and communities.  Let the rewards for successfully fulfilling your purpose be shared with the team.

Peace my friends…