Putting Incentives to Work

The New Year and any resolutions you may have made are now barely visible in the rearview mirror. Perhaps you can relate to Rob Christensen's 11-year-old self.

"I remember my dad offered me 100 bucks to not watch TV for an entire summer," recalls Christensen, now a BYU Marriott professor and director of the school's MPA program. His resolve lasted only a few weeks. "Once I messed up, I binged," he admits. And this was in the '80s, "before the era of streaming," he adds. "I probably watched more TV than ever."

Fast forward to today, and Christensen says there are better ways to tie $100 to such a goal. Incentives influence outcomes, just not always as intended. In fact, research by Christensen and his colleagues shows that one of the most common incentive strategies can actually backfire.

So what types of incentives truly motivate action at work, at home, or in the community? We can learn a lot from Christensen's discoveries and from other BYU faculty, like economist Joseph Price—who has no problem paying kids to eat broccoli or do family history work. BYU Marriott alums have also developed compelling strategies while working to inform the incentive structures at Bain & Company, Pattern, and Qualtrics. There may even be an incentive design that's worth slapping onto your next New Year's resolution.

All-Or-Something

Christensen's study,¹ coauthored with Steven Whiting, Gary Latham, and Paresh Mishra, pitted three incentive structures against each other, and there was a clear loser: the all-or-nothing incentive.

"It's still pretty common for companies to have these big all-or-nothing goals, such as year-end bonuses for heroic performance efforts," Christensen says. Think of the summer sales model: Maybe someone crushes the quotas and strikes gold. Most don't.

The irony, Christensen finds, is that the bonus intended to best energize employees has the opposite effect. Across three experiments in the lab and in the field, task performance suffered under an all-or-nothing incentive condition.

Take Christensen's field study in three call centers. Employees at the first call center could earn a $400 bonus only if they achieved the stretch goal—a 4.5 job performance score or higher. The second call center had multiple "proximate" goal levels: At tier one (a 3.0 score), employees would receive a 25 percent bonus; at tier two, a 50 percent bonus; and so forth. The third center worked under a piece-rate incentive condition, with employees receiving payouts for each performance-score point.

The results: Those under the 4.5-or-bust condition stopped striving. As one employee put it, "Once you know your month is shot, that there's no way to earn the bonus, you give up." In fact, the study indicated that it would be better to offer no bonus; even the control group, which worked toward the same goal with no incentives possible, notched higher task-performance scores than those in the all-or-nothing call center.

The takeaway: Stepping-stone incentives lead to the best results.

"We want a big, challenging goal, but we also want goals that are proximate," explains Christensen, who sees direct application to personal goals and resolutions. Say you want to lose weight. "Losing 25 pounds is a pretty hard, distal goal," and you might give up prematurely, he says. "But if there are proximate goals—say, have a salad every day—if you mess up, well, there's tomorrow."

Healthy Pressure

Pick the brains of BYU alumni at Bain, Pattern, and Qualtrics and it's clear that all three companies dangle outsized bonuses for top performers—but each company employs "proximate" tactics to keep employees striving.

One such tack: minimum targets. If employees at Qualtrics continually miss 50 percent of their sales target, "they could be managed out of the company," says BYU Marriott alum Lucas Baker, head of North America corporate sales at the company.

Another tactic: compounding incentive tiers. Reach your target at Qualtrics and you get into "accelerators," in which the incentives double or even triple.

If you're doing incentives right, Baker says, "you are creating healthy pressure all the way around." This includes pressure to drive harder for employees who are doing well and pressure to stay employed for those who are struggling. Both are important pieces, a push and a pull.

Calculated Coupling

The more specific your goals are, the more powerful it is to couple incentives with goals, says Baker. "Qualtrics knows exactly the type of revenue that's more profitable, the type that's better for the company, the kind of revenue it wants on its books," he says. Take three-year contracts. "All things equal, they're a lot harder to sell," he explains, but they make revenue streams much more predictable. When the company offered higher commissions for those contracts, multiyear deals increased dramatically.

It sounds simple, but managers often fail in this stage. They say one thing and incentivize another. A transportation company may talk big on safety but monetarily incentivize on-time arrivals. A firm may want more creative collaboration but then base pay on individual performance.

Innovation is one of those conundrums: Organizations want members to develop new ideas, but the process is time intensive and prone to failure. No one wants to be penalized or fired for going down a dead end. To incentivize innovation, Pattern, an e-commerce accelerator, launched an annual Innovation Cup, in which employees pitch ideas through American Idol–style rounds. The winners get a cash bonus and a crazy vacation. It's worth the cost, says John LeBaron, chief revenue officer. "We've had patents come from the Innovation Cup."

Drill down on what you hope the incentive will signal, says Baker. "Is it aligned with the behaviors you want to drive most?" he asks. "I can't tell you how many times I've interacted with someone in a store or with someone trying to sell me something and whoever I am engaging with clearly does not know—or is not incentivized to drive—what's best for their company."

Incentive design may take testing and tweaking, Baker adds. In a recent snag at Qualtrics, incentive structures put two departments in direct competition, cannibalizing each other's profits. Baker and the other team lead went to the CEO to refocus. "Companies need to be constantly looking in the mirror, and they have to choose to drive what's best for the company."

Thinking Intrinsically and Extrinsically

When is a task worth incentivizing, and when is it all in a day's work?

Enter Joseph Price, a BYU economics professor who also happens to be an incentive optimist.

"I think a lot of people are nervous about crowding out intrinsic motivation," Price says. To that point, he's cautious about incentives for expected behavior—the stuff of social norms. Take returning to the office after the pandemic. "I wouldn't pay people to show up to work," he says. Likewise, he wouldn't pay his kids to go to church. "To me that's just part of our identity." But he will pay kids to read books, eat vegetables, and complete family history work.

The differentiator for Price: the potential for skill or habit formation.

"I feel very comfortable paying kids to read books because I think it will create a skill that will make it easier to read books for the rest of their lives," Price explains. "I also feel pretty comfortable incentivizing kids to eat particular foods that are healthy because if they can acquire a habit or change preferences a bit, then they might continue to eat healthy foods for the rest of their lives."

Price proved the concept in school lunchrooms. In USDA-funded research published in The Journal of Human Resources,² Price increased the number of elementary students eating a serving of fruits or vegetables at lunch by 80 percent just by paying them a quarter each day they ate a serving. "Even when we took the incentive away, the kids were still eating more vegetables than before," he notes.

Another situation ripe for incentives: when the increasing cost function is steep. That's econ parlance for when the going gets tougher. Hypothetically, Price says, it's easy to get people to the gym a few times a month, "but if I really want them to have meaningful behavioral change, it's going to take 10 times a month. I might have to offer larger incentives if they get to the point where it's harder to do more."

The Right Carrot

It's worth noting that Price's veggie study did not achieve 100 percent participation. At the end of the study, he questioned one of the holdouts. Why didn't the student want a quarter?

"My parents buy me everything I need," came the response. "What would I do with the money?"

Price notes, "Obviously, we weren't using the right incentive for him." Price's subsequent research showed that schools have plenty of other levers—even simply scheduling recess before lunch moved forks. "What I like to tell people is that once you've identified something you wish there was more of in the world, there are lots of ways to bring that about," Price says.

The trick: finding the right carrot.

It's something Pattern is dogged about. In addition to often paying salaries above the 75th percentile, the company conducts annual surveys to genuinely listen to its workforce. "There are 5,500 free-form responses, and the executive team reads every single one," says LeBaron, who has been at Pattern since 2018. Within his own division, he also holds retreats where employees anonymously answer questions such as "What would keep you from being at Pattern in five years?"

"I'm constantly scanning, tracking scores across my team to make sure I'm taking care of my A players," he says. "One of the biggest travesties is having A players right under your nose and not taking care of them the way they deserve." He's also looking for his "B's" and how to motivate them to become "A's." Sometimes it's money, LeBaron says, but often it's flexibility, a promotional path, mentorship, equity, or a more engaging project.

And small incentives count, say the practitioners—things like winning preferred parking for a month or even soda. To help lure people back to the office three days a week postpandemic, Qualtrics opened a free in-house soda bar with all the flavor combinations.

There's power in such indulgences. A study by a trio of BYU Marriott accounting professors tested different incentives to get people to stick with a wellness program.³ Dangling tangible gifts, gift cards, and cash as options, they found that the people who selected gift cards were 25 percent more likely to complete the challenge. Cash is fungible and might go toward practical expenses, the researchers reasoned, while the gift card gives participants permission to treat themselves.

A few notes: Timing is worth consideration. Research suggests that more timely rewards increase employee engagement. Try not to move the goalposts, advises Christensen. "In our fieldwork, we saw that when a bunch of employees started reaching goals, the company would change the payouts," he says. "It was a huge demotivating factor." The best quotas, he adds, are challenging yet attainable. In his study, the big distal goal was set at the 93rd percentile of performance scores. His team's take: That's too high. "Most individuals will quickly see that attaining that goal will not prove possible for them," he notes.

Bring on a Constructive Crew

When she thinks of the most incentivizing moments of her career, BYU Marriott alumna Michelle Carroll recounts a routine check-in she had early on, when a supervisor candidly said: "Michelle, I see you as a manager at Bain."

This conversation, however, was anything but happenstance.

"A culture of frequent, regular feedback and apprenticeship is part of Bain's DNA," says Carroll, who surpassed the manager seat and became a senior director of global professional development and performance. She is responsible for the standards, processes, and systems that support performance management. There are formal annual reviews and weekly—even daily—engagements between mentors and mentees.

"We emphasize ongoing, daily professional development, coaching, and mentorship," she says. "That kind of direct feedback motivates people to do and be better. I call it interpersonal motivation. Beyond the bonuses and the promotion points, I think it's one of the biggest influences we have at Bain."

It's a tactic that can be applied in any sphere, Carroll says. In your ward, home, or professional life, enlist a feedback team. "You want people who are engaging with you on a daily basis," she explains. "And to some degree, you want people who have done what you're doing, who have sat in that spot, that role, and who can provide very concrete feedback."

Numerous studies support the premise that feedback alone can be an incentive. Take BYU Marriott accounting professor Bill Tayler's finding that, on average, pedometer wearers walk 318 steps more than other people—without goals or incentives attached.⁴ "Humans are hardwired to respond to what is being measured," Tayler says. "If it's being measured, it feels like it matters."

A parallel idea: We are especially motivated by seeing the impact of our work. Christensen cites several studies by renowned Wharton psychology professor Adam Grant, who has studied this phenomenon among lifeguards, editors, and fundraisers. Lifeguards who read other lifeguards' writings about life-saving experiences worked longer hours;⁵ editors at a career center who met the person they were helping—even briefly—increased time spent on tasks;⁶ and employees working the phones to bring in university donations invested more time—and brought in vastly more money—if they had actually met a student who had benefited from a scholarship.⁷

"That's something I think a lot about as a department chair," Christensen says. "Can we better motivate our department—students, staff, and faculty—by giving them more opportunities to see the impact of what they're doing or will be doing?"

Make It Social

According to Baker, team incentives can be almost more powerful than individual incentives. People are doubly invested, he says, because "they don't want to let their teammates down." And it ripples in a way that builds company camaraderie and culture.

For a team competition at Qualtrics, Baker didn't offer cash. The prize: matching, custom Air Jordans. And the winning team still sports them. "No one wants to be the weak link," Baker says. "I've seen people come together in pretty meaningful ways."

It's a favorite strategy at his home too. "I'm very goal oriented in my life outside of work," Baker says. "I create annual goals across five different categories, and I look at those goals every week." A present challenge at the Baker home: bedtime. And both kids and adults have sticker charts. While the kids turn in earlier, Baker's goal is to be in bed by 10 p.m. It's a joint effort to fill the charts. "We drive at it together," he says.

At Pattern, a team-incentive structure has even resolved counterproductive behavior. LeBaron used to incentivize his pipeline team (the people responsible for generating business leads) independent of his booked-revenue team (the deal closers). But under that strategy, the pipeline team put a premium on volume—getting as many leads as possible—and not quality, which the deal closers care about most. This created infighting over the quality and ownership of leads and deals. Now LeBaron aligns everyone "singularly to one big number." They make or miss the incentives together. In some ways, LeBaron is overpaying, he says, because everyone gets the bump regardless of their contribution. "But what you gain in that world is that all the posturing—the weird, subversive behavior—goes away. Everybody is happy."

Likewise, stock options can be powerful incentives, particularly at a smaller company, Price says. This strategy tethers everyone to the success of the company. "If all of us work really hard, then we all benefit."

Inputs vs. Outputs

One of the first questions in incentive design is whether to incentivize inputs or outputs, says Price. Prime example: doctors.

An output approach would reward physicians who have good outcomes—hitting blood pressure or cholesterol targets with patients or having low hospital-readmission rates. But the danger of that approach is that "doctors could just start avoiding patients who are going to have bad outcomes," Price says—they could cherry-pick the healthiest, fittest patients. "You have to think carefully about how people can game the system," he explains. "And you have to think about what people have control over."

If an incentive produces unintended consequences or if you keep falling short of a goal, Price says, try focusing on inputs instead. Incentivize the steps you think will improve outcome. For an aspiring chef, trying a new recipe every week. For a hopeful millionaire, saving 20 percent of income each month. For an influencer, posting content daily. "We have a lot more control over the inputs," says Price.

At Pattern, LeBaron noticed a growing gap between pipeline and booked sales. The uptick in meetings wasn't translating into revenue. Digging deeper, he discovered he had been incentivizing quantity over quality. Now, all these types of meetings get a grade. "We decided we'd pay a premium if you could set a meeting with a tier-A account," he says. Conversion rates improved just by pivoting from output—the volume of meetings—to input.

The beauty of it all: No one had to get a talking to. "Instead of trying to penalize people or telling them to change," LeBaron says, "we just change the incentive structure and help people do better work in their careers and for the company."

Beyond any one incentive-design structure, beyond any one paper, says Christensen, we need goals to strive for. "Virtually all of the 1,000 or more studies on goal-setting theory have shown that a specific, challenging goal leads to higher performance than an easy goal, a vague goal, or no goal at all," he writes in the study.⁸ And on the way to those big stretch goals, we need something incremental to push for.

"From a spiritual perspective, this echoes long-standing counsel," Christensen says. For example, in President Gordon B. Hinckley's BYU address "The Quest for Excellence," he invited us to "rise to the high ground of excellence" not in a single, heroic effort but with "a little more effort, a little more self-discipline, a little more consecrated effort in the direction of excellence."⁹ At home or at work, we can focus on the incremental stepping stones of the eternal covenant path, says Christensen. "As we take each of those intermediate steps in stride, the eternal, long-term goal will become clearer and ultimately attainable."

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By Brittany Rogers
Illustrations by Alex Nabaum

About the Author
Brittany Rogers, a freelance journalist, is grateful that dollar stores still motivate her kids.

Notes

1. See Steven W. Whiting, Robert K. Christensen, Gary P. Latham, and Paresh Mishra, "The Impact of Linking Three Different Incentive Methods to Specific, Challenging Goals," Compensation & Benefits Review 56, no. 4 (September 2024): 211–31, doi.org/10.1177/08863687231204711.
2. See David R. Just and Joseph Price, "Using Incentives to Encourage Healthy Eating in Children," Journal of Human Resources 48, no. 4 (October 2, 2013): 855–72, doi.org/10.3368/jhr.48.4.855.
3. See William G. Heninger, Steven D. Smith, and David A. Wood, "Reward Type and Performance: An Examination of Organizational Wellness Programs," Management Accounting Research 44 (September 2019): 1–11, doi.org/10.1016/j.mar.2019.02.001.
4. See William B. Tayler, James D. LeCheminant, Joseph Price, and Christian P. Tadje, "The Effect of Wearable Activity Monitor Presence on Step Counts," American Journal of Health Behavior 46, no. 4 (September 2022): 347–57, doi.org/10.5993/AJHB.46.4.1.
5. See Adam M. Grant, "The Significance of Task Significance: Job Performance Effects, Relational Mechanisms, and Boundary Conditions," Journal of Applied Psychology 93, no. 1 (January 2008): 108–24, doi.org/10.1037/0021-9010.93.1.108.
6. See Adam M. Grant, Elizabeth M. Campbell, Grace Chen, Keenan Cottone, David Lapedis, and Karen Lee, "Impact and the Art of Motivation Maintenance: The Effects of Contact with Beneficiaries on Persistence Behavior," Organizational Behavior and Human Decision Processes 103, no. 1 (May 2007): 60–64, doi.org/10.1016/j.obhdp.2006.05.004.
7. See Grant, Campbell, Chen, Cottone, Lapedis, and Lee, "Impact and the Art of Motivational Maintenance," 53–67.
8. Whiting, Christensen, Latham, and Mishra, "The Impact of Linking Three Different Incentive Methods," 212.
9. Gordon B. Hinckley, "The Quest for Excellence," BYU devotional address, November 10, 1998, speeches.byu.edu/talks/gordon-b-hinckley/quest-excellence/.