“The Power of Rewards at Industry International”

Case Study Presentation

Melanie Bertotto, Beau Bown, Imani Gilliam, Cara Pelletier & Blythe Taylor
Gonzaga University, Summer 2017
Agenda

• Case Study Summary

• Why Don’t Incentive Plans Work?
• Why Do Employers Keep Administering Incentive Plans?
• What Could Industry International Employees Do?
Case Study Summary
Case Study Summary

“Industry International” (Conrad & Poole, 2012, pp. 92-93)

• Compensation for Industry International employees is 3x higher than the average salary
for US manufacturing employees (pg. 92)
• These employees are 2 ½ to 3x more productive than their counterparts, which is why
they have remained a highly successful manufacturing firm in the US (pg. 92).
• Non union/No paid vacations/Work over 40 hour workweeks
• Perceived high social status
• “As soon as they [friends and neighbors] find out you work there, they think you have money coming
out of your ears” (pg. 92).
Case Study Summary

“Industry International” (Conrad & Poole, 2012, pp. 92-93)

• Much of the income for employees at Industry International comes from a year-end
cash bonus
• Bonus amounts are kept secret from October until a meeting in December
• This bonus is often used to pay bills as most employees live far above their means
throughout the year with the promise that the cash bonus will keep them in their
lifestyles
• Some employees will use the bonus to buy luxury and/or big ticket items in cash, gamble, buy drugs
or pay sex workers. The cash bonus allows employees the feeling of living the “good life” (pg. 92).
Case Study Summary

“Industry International” (Conrad & Poole, 2012, pp. 92-93)

• Bonus is paid on “Merit points”
• Merit points are based on output, quality, dependability, and personal characteristics
• Output and quality = Quantifiable
• Dependability and personal characteristics = Not quantifiable
• The combination of quantifiable and non-quantifiable merit points leads to conflict
• Money is perceived as being withheld from those with “undesirable” traits
• This is used as means to alter behavior; those that do not stay in line do not receive rewards
Case Study Summary

Current Employee Situation:

• Due to recessions, bonuses were lowered
• This led to Industry International employees losing homes, cars, etc. because they counted on their
annual cash bonuses to take care of the excessive bills they racked up throughout the year
• Employees attributed this loss to managerial greed, embezzlement and mismanagement
of accounts
• Employees are still expected to “bust [their] ass and
[they] don’t get compensated for it” (pg. 93)
Case Study Summary

Current Employee Situation:

• Employees don’t like the current system but there are many reasons why
they are afraid to resist:
• Most employees are too old to start somewhere new
• Lack of education holds employees back
• Employees’ skills are in manufacturing and there are few
high-paying manufacturing jobs left in the United States
• Employees fear that management will do away with the
cash bonus program
Case Study Summary

Prevalent Case Themes:

• 1. Rule and reward systems as a means to motivate and
control workers:
• “…all employees work to achieve goals, primarily economic ones,
and a system that rewards them for following established rules and
procedures and maximizing their own productivity would be in
everyone’s self-interest” (pg. 89)
• “Labor-management hostility would be replaced with cooperative,
mutually rewarding relationships” (pg. 89)

“If they got rid of bonus, they wouldn’t have

the control over anyone. Bonus is what they
have to keep hold on you” (pg. 93).
Case Study Summary

Prevalent Case Themes:

• 2. Difficulty in sustaining rules and reward systems within organizations
• Can only succeed if they are supported by effective communication and other factors:
A) Persuade members that rules and rewards are legitimate and fairly administered

“Rules will be seen as legitimate only if

members believe that they are applied
equitably to everyone in the organization and
are produced by the organization, rather than
by an individual supervisor acting on his or her
own whim” (p. 89).
Case Study Summary

Prevalent Case Themes:

• 2. Difficulty in sustaining rules and reward systems within organizations
• Can only succeed if they are supported by effective communication and other factors:
B) Connect to a credible reward system… Employees must perceive rewards as substantial and important

“They must believe that rewards are based on performance,

rather than friendships or biases, and that individual
employees are primarily responsible for their level of
performance, and the rewards they receive” (pg. 90).

“Employees do not evaluate the rewards (or punishments)

they receive in a vacuum; they compare them to what others
receive and what they believe others should have received”
(pg. 90).
Activity

Prevalent Case Themes:

• 2. Difficulty in sustaining rules and reward systems within
organizations
• Procedural justice – “if they perceive that the process through which
the rewards are allocated is fair, their trust in and evaluation of their
supervisors, and their commitment to the organization will be
higher”
• Distributive justice – “if they perceive that rewards allocated by the
organization are just , their job satisfaction is higher than if they
believe the distribution of rewards are unjust”
Case Study Summary

Prevalent Case Themes:

• 3. Intended versus unintended consequences of rule and reward systems
• “Reward systems are powerful motivating agents, but their impact is determined more by the
employees who interpret them than by the systems themselves” (pg. 94)
Case Study Summary

Key Case Takeaways:

• Traditional organizational control systems influence employees’ actions and attitudes
• Evidence that shows these systems have many unanticipated consequences
• Implementing control systems requires that a number of requirements be met and
even when they are employees will still make their own decisions about how to
interpret and respond to them
• Incentive systems don’t always work and can backfire on an employer, creating
employee frustration and backlash
Why don’t incentive plans work?
Why Incentive Plans Do Not Work

Rewards Create Temporary Compliance

• Rewards do not permanently change behavior: “Once the rewards
run out, people revert” (Kohn, 2013, n.p.).

“Rewards buy temporary compliance, so it looks like

the problems are solved. It’s harder to spot the harm
they cause over the long term” (Kohn, 1993, n.p.).
Why Incentive Plans Do Not Work

Rewards Can Discourage High Performers

• Research conducted by Timothy Gubler from Olin School of Business at Washington
University in St. Louis.
• Researchers studied attendance award program at various commercial industrial
laundries.
• Perfect attendance was defined as not having unexcused absences or late shift arrivals during the
month. Workers that met the monthly goal entered into a $75 gift card drawing.

Result: Average level of tardiness was reduced, but

employees who previously had excellent attendance
experienced a 6 to 8 percent productivity decrease
(Gubler, Larkin & Pierce, 2016).
Why Incentive Plans Do Not Work

Rewards Can Decrease Performance Overall

• Three decades of studies have shown that when people think about the
reward they might receive for completing a task, their performance suffers.

“These studies examined rewards for children

and adults, males and females, and included
tasks ranging from memorizing facts to creative
problem-solving to designing collages. In
general, the more cognitive sophistication and
open-ended thinking that was required, the
worse people performed when working for a
reward” (Kohn, 2013, n.p.)
Why Incentive Plans Do Not Work

Pay Is Not Actually a Motivator

• “Salary is part of what management
theorists call a hygiene factor, which also
includes status, job security, work
conditions, and how your manager
treats you. While not having proper
hygiene makes people feel demotivated
at work, the theory goes, having lots of
hygiene doesn't make you more
motivated” (Baer, 2014, n.p.).
Why Incentive Plans Do Not Work

Rewards Can Also Punish

• Not receiving a reward one expected to
receive is indistinguishable from being
punished” (Kohn, 1993, n.p.)
• When a reward is highly desirable, it is highly
demoralizing not to receive it.

“Punishment and rewards are actually two sides

of the same coin. Both have a punitive effect
because they are manipulative”
(Kohn, 1993, n.p.).
 Why do employers keep
administering incentive plans
if they don’t work?
Four Reasons Why Employers Use Incentive Plans

Great question! Our research revealed four reasons

why employers stick with these incentive plans

1 2 3 4
Four Reasons Why Employers Use Incentive Plans

1. Employers have not examined the connection

between incentive programs and the problems
related to workplace production/morale.
Four Reasons Why Employers Use Incentive Plans

Incentives may only work up to a certain point:

• Researchers studying neural activity in the brain used a “virtual spring
mass system” and asked participants in the study to spend a day
learning to use the system.
• On day two, they tested the usage and offered monetary incentives
for reaching various goals.
• They found that the greatest performance happened in the middle
range of monetary incentives for hard tasks.
• Performance increased to a tipping point and then began to decrease.
• We deduce from their research that a portion of the brain is activated
by incentives. However, once the work begins the value of the
incentive seems to disappear. (Chib, V. S., De Martino, B., Shimojo, S.,
& O'Doherty, J. P., 2012)
Four Reasons Why Employers Use Incentive Plans

Supervisor/Employee relationships impact incentives:

• Researchers studied 17 computer professionals in a travel company
whose jobs involved keeping the reservation system operational.
• They observed relationships between supervisors and employees,
testing the correlation between manager/employee closeness, incentive
controls and morale:
• Morale was defined as the “degree to which an employee feels good about (the)
work environment” (McKnight, Ahmad & Schroeder, 2001, p. 466).
• Management controls were defined as as “attempts to ensure desired outcomes”
(p. 467).
• They discovered that “the more controlling incentives are the less
likely they are to lift morale” (p. 474).
• Ultimately it was the combination of feedback, incentive and autonomy
that improved morale.
Four Reasons Why Employers Use Incentive Plans

2. Employers are deceived by the temporary

effective nature of the program.
Four Reasons Why Employers Use Incentive Plans

When incentives work for a short time,

employers assume they work for the “long haul”:
• In Killing Conscience (2014), Lynn Stout observes that “incentive
contracts suppress conscience” (p. 528).
• That is, relational contracts engender opportunistic and selfish
behaviors that may undermine long-term success.
• “But if we don’t use incentive programs to motivate employees, what
can we use?” (Stout, 2014, p. 557). The question highlights the
conundrum that employers face.
• She ultimately suggests a return to more modest salaries, non-
material rewards and merit pay adjustments (p. 560).
Four Reasons Why Employers Use Incentive Plans

3. Employees have grown up receiving rewards

for good behavior. This leaves them unfazed by
the practice.
Four Reasons Why Employers Use Incentive Plans

Research shows incentives undermine performance:

• What we learned about incentives and hard work growing up doesn’t
necessarily pan out in the research.
• “We are often encouraged to believe that rewarding people for what
they do will cause them to work harder and better. Sometimes we are
explicitly schooled in the belief that while punishments and fear are
destructive in an organization, rewards and the expectation of
recognition are almost, by definition, positive. Research . . . suggests
exactly the opposite” (Kohn, 1998, p. 2).
• Kohn suggests that companies should really be looking at the kinds of
motivation that people need in order to achieve optimum
performance
Four Reasons Why Employers Use Incentive Plans

4. Employers have a false belief that motivation

problems relate to the incentive.
Four Reasons Why Employers Use Incentive Plans

Management lore is filled with pervasive beliefs that

may not actually be true (Buckley et al., 2015)
• “(A) survey of executives across a variety of industries revealed that
executives believe that monetary incentives are the primary influence in
the workplace, even as they acknowledge the influence of other
incentives in their own behavior” (Dewhurst et al., 2010).
• In general, there seems to be a disconnect between managers and
employees regarding the source of employee motivation” (Buckley et.
al, 2015, p.76).
• The authors use the perspectives of Theory X and Theory Y to suggest
why the differences remain. Theory X represents the belief that
employees are only motivated by monetary gain while Theory Y
suggests that motivation is based in a desire to do well (Buckley et al.,
2015).
Four Reasons Why Employers Use Incentive Plans

What lessons can we take away from this research?

• Individual employees and employers need to understand the personal and
corporate motivations that they hold.
• Employers would do better to provide a mix of incentives on a consistent
basis.
• Traditional strategies of organizing prevent or minimize success in relationship
and therefore, create distancing in the context of teamwork.
• In our case study, the correlations would suggest that employees at Industry
International would be more content in their work if the company provided
them moderate salaries, good feedback and made them feel valued. Value
could be demonstrated through relationship building, teamwork, and an
ability to have creative contributions to the larger institution.
 What could Industry
International employees do?
What Could Employees Do To Resist?

Employee Options As Viewed By Industry International Employees:

• Resisting Management
• Work stoppage or strike
• However, this will hurt employees paychecks as well as management/productivity
• Unionizing
• Management has stated that the bonus program will stop as soon as a union forms, but if the bonus
program stops than there is incentive to unionize without that threat
• Lowering productivity
• Anarchy
• Some employees are predicting violence and plant sabotage in the event that the bonus program is
revoked
 What would you do as an
employee in this situation?

What would you do as a

manager?
References

• Baer, D. (2014). Why incentives don’t actually motivate people to do better work. Retrieved June 16,
2017 from http://www.businessinsider.com/why-incentives-dont-actually-make-people-do-better-
work-2014-3
• Buckley, M. R., Baur, J. E., Hardy, I. I. I., Johnson, J. F., Johnson, G., MacDougall, A. E., . . . Peacock, J.
(2015). Management lore continues alive and well in the organizational sciences. Journal of
Management History; Bradford, 21(1), 68-97. Retrieved
from http://search.proquest.com.ezproxy2.barton.edu/central/docview/1655513886/abstract/70560C
C220AB48A1PQ/7
• Chib, V. S., De Martino, B., Shimojo, S., & O'Doherty, J. P. (2012). Neural mechanisms underlying
paradoxical performance for monetary incentives are driven by loss aversion. Neuron;
Cambridge, 74(3), 582-594. doi://dx.doi.org/10.1016/j.neuron.2012.02.038
• Conrad, C. & Poole, M.S. (2012). Strategic organizational communication in a global economy (7th ed.).
Chichester: Wiley-Blackwell.
• Dewhurst, M. , Guthridge, M. & Mohr, E. (2010), “Motivating people: getting beyond money”, Mckinsey
Quarterly (1), pp. 12-15.
• Gubler, T., Larkin, I. & Pierce, L. (2016). Motivational spillovers from rewards: Crowding out in a
multitasking environment. Organization Science 27(2), 286-303.
References

• Kohn, A. (1993). Why incentive plans cannot work. In Harvard Business Review. Retrieved from
https://hbr.org/1993/09/why-incentive-plans-cannot-work
• Kohn, A. (1998). How incentives undermine performance. The Journal for Quality and Participation;
Cincinnati, 21(2), 6-13. Retrieved
from http://search.proquest.com.ezproxy2.barton.edu/central/docview/219171998/abstract/70560CC
220AB48A1PQ/1
• McKnight, D. H., Ahmad, S., & Schroeder, R. G. (2001). When do feedback, incentive control, and
autonomy improve morale? the importance of employee-management relationship closeness. Journal
of Managerial Issues: JMI; Pittsburg, 13(4), 466-482. Retrieved
from http://search.proquest.com.ezproxy2.barton.edu/central/docview/194164697/abstract/70560CC
220AB48A1PQ/3
• Stout, L. A. (2014). Killing conscience: The unintended behavioral consequences of "pay for
performance". Journal of Corporation Law; Iowa City, 39(3), 525-561. Retrieved
from http://search.proquest.com.ezproxy2.barton.edu/central/docview/1645390280/abstract/70560C
C220AB48A1PQ/14
Thank You!