By Chris Deubert
Constangy, Brooks, Smith & Prophete, LLP

Give your employees something to think about.

In his recent book, Mixed Signals: How Incentives Really Work, economist and University of California, San Diego professor Uri Gneezy examines how incentives of various kinds can and do modify behavior in a variety of contexts.  Employment is one of the contexts in which incentives have particular application.  Here are some strategies for consideration by employers based on the concepts discussed in Gneezy’s book:

Consider paying bonuses in advance to improve performance. 

This proposal takes advantage of loss aversion, which refers to an individual’s sensitivity to losing something they already have as compared to gaining something new of the same value.  In the employment context, bonuses are used to incent employees to perform well and reward them accordingly.

Consider two scenarios.  In the first scenario, an employer has a policy of paying employees an extra $1,000 at the end of the month if they constructed 100 widgets in that month.  Alternatively, in the second scenario, the employer pays the $1,000 bonus at the beginning of the month and informs the employees that if they do not construct 100 widgets in the coming month, the $1,000 bonus will be forfeited and their future pay reduced accordingly.

Research has shown that the second scenario results in better performance.  Employees will work harder to avoid losing something they already have versus gaining something they do not have.

The major risk of this approach is if an employee quits shortly after receiving the upfront bonus.  Ideally the employer could deduct it from any regular amounts still owed to the employee in arrears.  To the extent such an offset is not fully available, expected losses would need to be weighed against the expected increases in productivity.

Consider lotteries to get employees to work in the office. 

Lotteries can work in a variety of ways.  The most common is that people buy lottery tickets for a chance to win a pot of money.  The more tickets you buy, the better your odds.

Such programs could be used to incent employees to work in the office more regularly, an increasing issue of concern for employers.  The simplest approach would be to award tickets to employees for each day they come into the office.  At the end of a week (or other time period), one or more tickets would be pulled for a prize of some kind.  The more days an employee spent in the office, the more likely they would be to win the prize.

This approach can work but a “lottery with regret” would probably work even better.  In this scenario, every employee’s name would be entered into the lottery.  Then, at the end of a week, a name is publicly pulled to determine the winner of the prize.  However, if the employee whose name was pulled had not spent a sufficient number of days in the office that week (perhaps three days), their name would be thrown out and a new name pulled until a qualifying winner was determined.  In this scenario, an employee who misses out on the prize will regret having not gone to the office three days that week.

There are two principal concerns with this approach.  First, the prize must of course be less than the expected boost in revenues from improved production.  And second, employers must account for employees unable to come into the office due to a disability or for other reasons requiring accommodation.

Consider paying employees to quit at key moments. 

Gneezy’s book recounts how Zappos, Amazon, and Riot Games have used the “pay to quit” strategy to promote a motivated and committed workforce.  Every once in a while, these companies would offer their employees a few thousand dollars to quit.  The point was to weed out the employees who were non-committal about the company and retain those most motivated to make the company successful.

This approach might have particular salience at key moments, such as when there’s a major shift in strategy, product or process.  At those moments, few employees will voluntarily offer that they are against the change.  Consequently, those moments offer an excellent time to separate from the skeptical employees and ensure that those who remain are committed to the new approach.

These proposals will not work for all companies and their success or failure will of course vary depending on a wide range of factors.  Nevertheless, these approaches have been studied and proven effective.  Consequently, they are worth considering for any employer.