When a company is doing well, intrinsic and extrinsic reward outcomes tend to improve for the organization’s employee population. When a company is performing at a high level it is common to see:
– Higher merit increases
– Additional perks (ex. more paid time off, free food, more casual workdays etc.)
– Higher equity and cash bonus payouts
– Additional opportunities for advancement
…Invariably, however, the high times (eventually) come to a close. The organizational life cycle is made up of five phases:
– Birth (the start up phase)
– Growth (the high times – often leading to an IPO)
– Maturity (when things begin to stabilize)
– Decline (the organization is disrupted and starts to see shrinking profits)
– Death (if – once in crisis – an organization can’t find a way to revitalize itself and return to the maturity of growth phases then it will inevitably die)
…Unfortunately, when an organization moves from maturity to decline its employees still expect to receive the rewards and recognition they got when times were good. This is particularly true as it concerns extrinsic rewards; cash bonuses and earnings in the form of vesting equity over time come to be viewed as a normal part of income (and are spent accordingly). As such, when long-standing variable pay declines (or even goes away) it often leads to a decrease in lifestyle for the impacted employee. Employee engagement and satisfaction then declines, and organizations that were trying to reward employees when times were good are left with an incentive structure that – although perhaps sound in theory – is no longer valued by the employee population.
In considering the organizational life cycle and the tendency of rewards to become entitlements, I’m becoming more bullish on the use of intrinsic rewards (as opposed to extrinsic) to recognize exceptional performance across an enterprise. This doesn’t mean that companies should do away with cash awards, but it should grant them with an eye on sustainability – or at the very least space them out in irregular enough intervals that they don’t become expectations (in the process becoming an unsustainable fixed cost).
What am I getting wrong here? Share your thoughts in the comments below.
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