People - 12.12.2018 - 00:00 

Effects of bonus systems on employee motivation

There are two types of (employee) motivation: intrinsic motivation (founded on internal incentives) and extrinsic motivation (founded on external incentives). In his doctoral thesis, Cornel Dalla-Rosa investigated the effects of "pay for performance" on the motivation and work effort of employees.

12 December 2018. Pay for performance is a variable remuneration based on the achievement of individual goals and is currently a widely used practice. "For quite a while, there have been more and more critical voices in science that have called into question the unqualified positive effects of pay for performance on the motivation of employees," says Dalla-Rosa. According to him, experiments have already shown that in the case of complex tasks, pay based on individual goal achievement has a negative impact on the intrinsic motivation of employees. "In a corporate context, scientific evidence is scarce though," adds Dalla-Rosa. "I wanted to fill this gap in research with my doctoral thesis 'Pay for Performance and work motivation: An empirical analysis with sales people'."

Intrinsic vs. extrinsic motivation
Dalla-Rosa surveyed over 500 employees of an industrial corporation in seven countries. "As expected, the study revealed that these bonus systems improved the extrinsic motivation of employees," says Dalla-Rosa. "However, the results also showed that intrinsic motivation was suppressed by pay for performance." The suppression increased the more experience the employee had.

In his doctoral thesis, Dalla-Rosa also illustrated that intrinsic motivation has a positive effect on work effort. On the other hand, extrinsic motivation (through financial incentives, for example) does not have any effect on the work effort of employees. This implies that the stronger employees are motivated from the outside, the less effort they put into their work. "From a motivational perspective, pay for performance defeated its purpose," according to Dalla-Rosa. "Especially when it comes to complex tasks."

Promote intrinsic motivation
Based on his results, companies should take a more critical look at their remuneration and bonus systems and apply them in a differentiated manner. However, Dalla-Rosa also stresses that pay for performance is not per se "bad". "For simple, repetitive tasks it can serve its purpose." He suggests that companies promote their employees' intrinsic motivation more when it comes to complex tasks. This has been proven to have a positive effect on the commitment and health of employees.

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