An approach to incentives that gets results

Adapted from The Internet & Marketing Report.

Who doesn’t like incentives!

They are all the rage, and any employee worth his or her own salt wants to be incentivized as often as possible. Right?

Well, that’s always been the widespread belief — and practice — in spite of tons of research that suggests incentives aren’t so good at improving performance in the long-run on anything other than the most repetitive and mundane task. That’s because it’s thought that being too focused on the reward can cloud the creative process.

However, a recent Harvard University study found that adding a little wrinkle dramatically improves student performance: give teachers a reward upfront and threaten to take it away if performance doesn’t actually improve.

It’s what’s known as loss-aversion — that people are more motivated by the thought that something could be taken away if they don’t achieve a goal. For managers and executives, exploiting this loss-aversion tendency could open the door to better performance in all parts of any organization.

The Harvard study suggests pay-for-performance has a dismal record of improving student outcomes. Teachers who were offered sizable bundles of cash didn’t help their students any better than teachers who simply worked out of the goodness of their impoverished hearts.

But to lose something, that’s different! People will scale the highest mountains to hang onto what they already possess. For instance, researchers found people will pay more than twice as much money to keep a coffee mug they were given than to acquire it in the first place.

These ideas hold exciting possibilities for business. Marketers, for instance, could offer discounts, samples or add-ons for free, but revoke them if customers don’t maintain a standing order, or write a favorable online review.

On a wider scale, why not hand out bonus pay at the beginning of the year? Nobody wants to give it back.

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