Position Pay Incentives Can Backfire

I was nosey and decided to read this article and see if I agree with it. I look to the throughput of people and machinery to gauge if the plan and people can satisfy the requirements. Plans are not ironclad and may need to be changed to meet what people can do in a setting. Pay Incentives can be a useful tool. But so is vacation time, benefits, etc, play an important part. Read on and you may want to go to the KelloggInsight article to see what they say in addition to what I included or said otherwise.

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While increasing bonuses and commission rates might seem like a good idea, doing so can inadvertently harm the quality of an organization’s workforce.

How Higher Pay Incentives Can Backfire

In the mid-1990s, Safelite, a windshield repair company, made a bold move. It replaced hourly wages with performance-based pay incentives, offering employees the chance to earn more money the more windshields they installed. The results were striking.

Within a year, productivity surged by approximately 44 percent.

“That’s a massive increase,” says George Georgiadis, an associate professor of strategy at the Kellogg School of Management and an expert on performance-based incentives.

The reason for this productivity bump was nuanced. About half of the increase came from existing workers putting in more effort. The other half was due to a shift in the type of employees Safelite attracted. “The least productive employees left, and the new hires who replaced them were significantly more skilled and productive,” Georgiadis explains.

Safelite’s success story quickly became a textbook example in economics, illustrating how performance-based pay could boost productivity by both motivating current workers and attracting better talent.

Inspired by this example, many companies came to believe that continually increasing incentives—such as bonuses, commissions, or stock options—would naturally attract the best talent and drive productivity even higher. Indeed, many growth-focused companies, including tech giants like Google and Netflix, have adopted increasingly generous incentive structures, hoping to attract and retain top talent and keep profits climbing.

Yet despite its widespread popularity, this approach has a critical blind spot. It assumes that steepening incentives always leads to better employee selection—that it will attract more high-skilled and productive workers. But research by Georgiadis and his colleague Henrique Castro-Pires of the University of Miami challenges this assumption.

Findings suggest steeper incentives do not automatically guarantee better hires and, in some cases, can backfire.

The downside to higher incentives? Offering performance-based pay does not guarantee the best employee/worker will be chosen or is the right selection. Each potential employee can pass a screening test. However, the higher skilled potential employee will pass and with a higher result than a lesser skilled potential employee. The employer would choose from amongst the applicants having a higher result.

As the authors point out found . . . “Steepening incentives is not a panacea for worker selection. In some situations, it can actually hurt selection. Companies, therefore, need to actively think about how to structure incentives to improve their applicant pool.”

The author uses incentives to attract potential employees. As we read in the article, the incentives are designed to attract such employees. I believe one issue may be knowing which potential employee may be the better qualified, skilled employee. To understand which one is such may depend upon all the normal factors discovered during interviews. The basics such as education, positions held, job experience, background check, and available references before an offer is made help make a better decision. The prioritize them and make that your score card.

There is more to this than what I am going to present on Angry Bear. When I would interview, I would read the resume beforehand. Write down some questions to ask based on the resume and the position. The questions may change based upon a candidates resume. I was interested in the fit to the position and gauge how much planned time I may have to train them

“How Higher Pay Incentives Can Backfire,” KelloggInsight