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Management

The dark side of paid bonuses

9. November 2022

Suzanne van Gils

At first hand, paying employees bonuses to promote excellent performance may seem like a great idea, but is it really?

In many organizations there seems to be the ingrained idea that all hard work and commitment should be provided for by some sort of reward, oftentimes through financial rewards.  

This is good, because providing bonuses for employees' performance makes people work harder, right?

Well, yes, many studies have shown that if you pay your workers for how well they perform, it will indeed increase their motivation. However, some studies suggest that paying workers for their performance may have understudied negative effects. 

Performance-based pay plans ingrained in many companies 

Most companies use performance-based pay plans in some form or another. These plans either increase the salaries of the employees permanently in form of merit pay, or they may reward performance by paying their employees financial bonuses.  

Previous studies have shown that paying employees for their performance increases their motivation as means of competitive processes. However, such competitive processes can also have their downsides, which are oftentimes overlooked. 

In a new study, Suzanne van Gils and her research colleagues Daniel Gläser and Niels Van Quaquebeke set out to explore the relationship between paying employees for their performance, competitiveness, and interpersonal deviance. The latter is voluntary, aggressive behaviour towards co-workers, which can consist of incivility, workplace bullying, violence, sexual or ethnic harassment, and other harmful behaviours.

Providing bonuses may activate aggressive competitiveness 

The researchers conducted three studies that build on each other, and recruited participants, via an online-based service for scientific studies.

They wanted to examine if paying employees for their performance: 

  1. activates their aggressive competitiveness,  
  2. manifests itself in the form of interpersonal deviance against colleagues at the workplace because of  
  3. activated competitiveness in the work context 

What did they find? The participants who received a bonus, self-reported higher interpersonal deviance towards their co-workers, and higher degree of individual competitiveness.  

In other words, the study indicated that performance-based bonuses can have significant negative consequences. The employees may become more aggressive, and potentially see one another as competitors. Hence, aggressiveness at work can lead to people experiencing increased stress, higher job withdrawal, and reduced psychological well-being and work satisfaction. 

Reduction of work performance

Unhappiness among employees as a result of a culture of interpersonal deviance can be destructive for the individuals, but also for the company. Lower work satisfaction can lead to lower performance. In fact, some estimates place the organizational cost of such deviant behaviour at more than $20 billion per year. 

Furthermore, performance-based bonuses can inspire not only comparison, but also associations of competitiveness. That can make employees see their work tasks as “competitions”, sometimes leading them to act in a way that can give them a competitive advantage. 

When working in a company or an organization, one is part of a team. Therefore, cooperation and knowledge sharing is essential. However, when workers look at each other as competitors, it may lead to the opposite. 

Be mindful of potential negative effects 

Providing bonuses as a reward for those who perform well is not always a bad idea, and competition is not necessarily a negative thing. But paying employees for performance will constantly confront employees with the expectation and message that performance is measured and compared. This is something that organizations and employers should consider before integrating performance-based wages and bonuses.  

The article is written by student assistant Emma Skjelten Daalsvatn.

References:  

Daniel Gläser, Suzanne van Gils & Niels Van Quaquebeke (2022) With or against others? Pay-for-Performance activates aggressive aspects of competitiveness, European Journal of Work and Organizational Psychology, DOI: 10.1080/1359432X.2022.2039125 

Robinson, S. L., & Bennett, R. J. (1995). A typology of deviant workplace behaviors: A multidimensional scaling study. Academy of Management Journal, 38(2), 555–572. https://doi.org/10.5465/256693  

Litzky, B. E., Eddleston, K. A., & Kidder, D. L. (2006). The good, the bad, and the misguided: How managers inadvertently encourage deviant behaviors. The Academy of Management Perspectives, 20(1), 91–103. https://doi.org/10.5465/amp.2006.19873411  

 

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