Cutting Employee Incentives Hurts Productivity, Morale and the Bottom Line
James Combs, Yongmei Liu, Angella Hall, David Ketchen
Personnel Psychology, Autumn 2006
A study of nearly 20,000 organizations shows that employee incentives really are good for business. Data from 19,319 organizations reveal that when a company emphasizes human resource activities such as incentive pay and flextime, it can enjoy a 10 to 20 percent improvement in employee retention, employee productivity, profitability and stock price, according to an as-yet-unpublished study in the journal Personnel Psychology. Meanwhile, companies that cut these programs can expect a 10 to 20 percent reduction in their bottom line.
The study found that performance improvements are stronger when companies take a systematic approach to human resources rather than implementing one or two practices. The study also found that human resource activities make a bigger difference among manufacturing firms than among service firms.
The study used a technique called meta-analysis to mathematically combine the findings of 92 previous studies published since the mid-1980s. David Ketchen, Lowder Eminent Scholar at Auburn University, was an author of the study. Co-authors with Ketchen were James Combs, Yongmei Liu and Angela Hall, all of Florida State University.
