The effect of employee rewards, penalties

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Employers should think carefully about their approach to motivating employees. Karen Sedatole and Kristy Towry, Goizueta professors of accounting, along with coauthor Margaret Christ of the University of Georgia, study the effects that rewards for good performance and penalties for poor performance have on trust and perceptions of fairness in the work environment.

It’s well known that individuals tend to have a stronger negative reaction to the loss of something than a positive reaction to a gain of an equal size. One might expect, then, a penalty for poor performance would be a stronger performance motivator than a bonus for good performance. However, there is a downside to penalties—they are often interpreted as a signal of distrust.

“To be motivated, employees need to know their employer believes they are capable of doing the job and trusts them to put forth the best effort. Penalties, on the other hand, can be interpreted as a sign the employer doesn’t trust the employee to work as hard as he or she should,” cautions Sedatole. The consequences of a culture of distrust include lower employee effort and greater employee attrition, especially in settings where trust in performance evaluation is critical. In these instances, performance evaluations are more subjective.

This research documents the role that rewards and penalties play in promoting trust in the workplace, employee retention, and ultimately organizational performance. Employers would be well advised to consider a more rewards-friendly approach, the researchers conclude.

View the paper at emory.biz/trust.

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