The real cost of not incentivizing employee performance

There are many ways to measure employee performance, but one thing is for sure: not doing so can be costly for both organizations and professionals. Here are three negative downsides of not incentivizing individuals and teams — and why it’s important.

“Employers should be aware that only 55% of employees are satisfied in their job when their employer is ineffective at incentivizing performance. That number drops to 40% when employers are very ineffective at incentivizing performance,” says Mel Kasulis, Project Manager for Skynova, an organization that recently released a survey on the impact of performance incentives.

The results revealed that only 55% of employees say their employer fairly and consistently rewards their performance. “More concerning, only 26% of employees say their employer effectively rewards them for exceeding long-term goals,” says Kasulis.

In a job market affected by pandemic-related turnover, that’s terrible news. A failure to provide adequate performance incentives could end up costing companies and employees money over time — and it’s a situation that can be remedied through honest discussions with HR and creative goal-setting initiatives.

1. A lack of performance incentives affects productivity

Picture this: You start a new job filled with enthusiasm and lofty ambitions. Your boss doesn’t seem to notice your results, so you make it a point to highlight them — she is juggling tons of priorities, after all.

Then, a year down the road, despite consistently delivering outstanding work, your efforts still don’t seem to be acknowledged. And they haven’t led to any concrete opportunities for personal gain.

Even if you’re highly self-motivated, chances are your drive to go above and beyond will decrease at that point.

And it makes total sense, according to the Skynova survey results. Employees who work in an environment with poor performance incentives rated their attitude and productivity scores 61/100 and 77/100, respectively. On the other hand, employees whose employers effectively reward them for great work rated their attitude and productivity scores 88/100 and 86/100. Quite the difference over time.

“This not only impacts day-to-day operations, but a failure to [incentivize] could lead to a decline in employee retention, especially in today’s job market,” says Kasulis.

2. Poor performance incentives decrease earning potential

As a professional, it’s in your best interest to work in organizations that have solid performance incentives, as it can directly affect your earning potential. Study results found a correlation between compensation and an employer’s effectiveness in setting goals.

Eighty-three percent of employees who work at companies with great performance incentive plans are satisfied with their salary. But only a third of employees at companies with poor or ineffective performance incentives report being happy with their compensation.

It’s critical to set yourself up for success by working in organizations where expectations are clearly defined and you can meet goals, as this will help you access opportunities to earn bonuses as well as advancement in the long run, which can both grow your income.

3. A failure to incentivize performance hurts work relationships

Perhaps the correlation between performance incentives and productivity is obvious to you. But did you know that a failure to properly incentivize performance can also hurt work relationships, even between coworkers?

“Another fascinating discovery from our research found that a failure to incentivize performance leads to poorer employee relationships with coworkers and job responsibilities,” says Kasulis.

“Among employers who are very ineffective at incentivizing performance, just 64% of employees are satisfied with their coworkers. Additionally, only 57% are satisfied with their responsibilities. What’s impacted most is the relationship between the employee and their employer. Just 32% of employees are satisfied with their employer when they’re very ineffective in incentivizing performance.”

4. Creative ways to incentivize performance

For optimal results for both employees and employers, creating systems that support effective goal-setting and rewards is key. “Creating this culture is necessary for employees to thrive and contribute to the success of the business,” according to Kasulis.

And it doesn’t have to take the form of a complete organizational overhaul either, as small, consistent shifts can have a powerful impact on culture.

“Team challenges rewarding employees who meet and exceed expectations are a great and fun way to keep the entire team motivated. This could be a monetary bonus or even something simple like a gift card or a free lunch.”

You can get pretty creative with rewards too, as different things motivate different people. For example, you can choose to donate funds to a cause important to your team when a goal is met. Or you can create custom Slack emojis to celebrate team members who have reached their targets. Opportunities to spend time as a team and with leaders outside of work, such as celebratory dinners, are also great.

If your company doesn’t provide performance incentives, Kasuris recommends booking a one-on-one meeting with your manager or HR to kick off the conversation. And outlining your team’s achievements, as well as specific examples of times when you’ve exceeded goals, can help you build a case.