Are workplace incentives working?

A new study has peeled back the layers of what drives workers, finding that those encouraged to display honesty are more likely to do so than those who are incentivised.

Suggesting that incentives specifically designed to prevent dishonesty may be having the opposite intended effect, new research may just be disproving decades of understanding around workplace conduct and remuneration.

Co-authored by Associate Professor Gordon Menzies and Professor Isa Hafalir, and published in the Journal of Business Ethics from UTS, the paper has vouched for the positive effects of trust and professional integrity as stronger drivers for employee transparency.

Broader research on the interaction of economics and moral decisions during the global financial crisis fuelled Menzies to reconsider previously held ideas around incentives and preventative measures. He used the principal-agent model – which has determined the nature of bonuses since the 1980s – to determine how even employees with fixed salaries can outperform those with incentives in contracts if they display a genuine commitment to honesty.

According to Menzies, the reality is that most workers “are neither perfectly self-interested nor perfectly trustworthy”.

The implication of this, he said, is that “offering an incentive contract can itself send a signal of distrust. That can discourage honesty, reduce trustworthiness and create a downward spiral where even more incentives are needed.”

As reported last year, a Gartner study found that employees who trust senior leaders are five times more likely to be highly engaged than those who don’t, as employees feel more motivated to perform well. Despite these findings, employers continue to underestimate such factors.

Menzies also looked at fields with considerably high salaries to determine if there was any factor beyond the skill set that it reflected, and what it represents in society.

He said: “Doctors, lawyers and other professionals are not just service providers responding to price signals. Their work depends on duties of loyalty, care and truthfulness.”

“The persistence of salaried professional roles is not an accident. It reflects the very economic value and economic efficiency of trust, judgment and moral responsibility.”

The research, Menzies surmised, “is especially timely for debates about performance pay, executive incentives, professional standards, compliance culture and trust in institutions”.

The findings come at a time when both employers and employees are looking at other methods of remuneration to keep employment competitive and mutually beneficial. As reported, flexibility continues to be a priority for employees, with employers urged to allow for such arrangements where appropriate, in addition to further benefits such as training, skills development and overall balance.

Menzies concluded: "It’s important to discern honesty and trustworthiness, because not everyone is. But on the other hand, if you assume people aren’t, and if you are too keen to offer incentive contracts, you get the kind of behaviour you don’t want."

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