Bosses hoping to motivate employees to work harder may want to trade merit-based raises for performance-based bonuses, suggests a Cornell University study.
The four-year study which tracked more than 700 workers found that a 1 percent increase in pay generally led to a 2 percent increase in performance. A lump-sum pay-for-performance bonus of the same amount, meanwhile, inspired employees to improve performance by an average of 15 percent.
"Making a strong link between pay and performance worked with bonuses, but it did not work with pay rises," [study author professor Michael Sturman] said.Read more: Bonuses 'better than a pay rise'"Pay rises build trust between the employee and the company. Bonuses, on the other hand, are highly motivating."
ABSTRACT: Using Your Pay System to Improve Employees' Performance: How You Pay Makes a Difference