Negative Incentive Examples: How to use them?

What drives people to work? Is it the motivation for rewards or the fear of being punished? 

Kelly Goldsmith, an American marketing researcher, and Ravi Dhar, an American behavioral scientist experimented to find an answer to this question. 

They made two sets of groups to solve a series of anagrams. The first group was positively framed where they won money as a reward for each anagram they solved. 

The second group was negatively framed where they won money for the right answers and lost it as punishment for each unsolved problem. 

The result was that negative incentives were more motivating than positive incentives. 

Does this mean negative incentives must be used more in workspaces for better results? Can this be generalized to all work environments? Is it ideal to weigh negative incentives above positive incentives? 

Let's find answers to these questions and more. 

The article helps you understand the negative incentive definition, its examples, advantages, and disadvantages. 

We will also explore the comparison between positive vs. negative incentives and problems with employee incentives. 

What is a Negative Incentive?

Negative incentives aim at discouraging certain undesirable behaviours in the workspace. 

Companies can ensure a healthy work environment by imposing punishments or severe outcomes on individuals who engage in such inappropriate behaviour. 

For example, employee misconduct can cost them loss of pay, removal from promotion, or increment to the extent of suspension or loss of job security depending on the severity of the misbehaviour. 

Organizations must make judicious use of negative incentives to ensure that they create a healthy and disciplined workspace without hindering the creativity and innovation of the employees. 

What is Negative Incentive Psychology?

Negative incentive psychology stems from B.F Skinner’s Behaviourism. Under this school of thought, he postulated that human behaviour is a result of external stimuli. 

The study states that encouraging people to behave in a particular way can be achieved by offering positive stimuli while discouraging certain behaviours often involves providing negative stimuli.

When applied in a workspace scenario these stimuli can be termed as incentives. Positive incentives motivate employees to behave a certain way while negative incentives discourage them from misconduct. 

Negative incentive psychology studies how punishments or negative consequences influence human behaviour or decision-making. This can involve punishments, penalties, negative repercussions, undesirable consequences, etc.    

Applying negative incentives psychology in your workspace will help in building a healthy and safe work environment which ensures misconduct and undesirable behaviour are strictly scrutinized to never repeat again.  

Examples of Negative Incentives

Negative incentives are mechanisms used in workspaces to discourage certain undesirable behaviours and ensure a well-managed environment. 

Depending upon the severity of the action, negative incentives are implemented. 

Let us look at some of these negative incentive examples that can be judiciously incorporated into the workspace.  

Demotions

Demotion refers to the lowering of an employee’s rank within a company due to their poor performance or misconduct. It is a negative incentive that can potentially impact their future increment and other career development opportunities. 

Salary Reductions

Employers implement salary reduction as a penalty for repeated absenteeism, poor performance or indolence, failure to meet targets, etc. imposing a financial penalty can severely impact employees and lead them to improve their performance for better results. 

Loss of Privileges

Due to certain conduct or poor performance, employees may face loss of privileges and benefits. When an employee violates a company policy, management can deprive them of their flexible work hours, access to company resources, or other benefits. 

Written Warnings

Written warnings are formal notices that management issues when an employee performs poorly, their conduct is inappropriate, or during an event of policy violation. It formally documents the issue and provides a warning of potential consequences if things don't improve.  

Termination

When an employee has done severe misconduct it can cause them to lose their job. If an employee is terminated as a negative incentive, it will be projected throughout their career and will have adverse effects in the long term.  

These examples show the impact poor performance, negligence to company rules, inappropriate behaviour, and other severe actions can have on your career. 

Companies take a negative incentive approach to prevent employees from such behavior and maintain a healthy, safe, and productive work environment.

Positive vs. Negative Incentives

Incentive theory of motivation postulates the use of incentives to drive performance and desired behaviour. 

Under this theory, both positive and negative incentive approaches are used to influence performance, behaviour, and actions. However both these incentives act in opposite ways to bring the desired outcomes. 

Positive Incentives

Positive incentives are rewards and recognitions implemented to encourage desired behavior from the workforce. It ensures employee motivation, enhances engagement, and ensures overall satisfaction. Implementing individual incentive plans can further personalize rewards, fostering a sense of accomplishment and driving performance at the individual level.

For example, when an employee is given a commission for their target achievement, they will be motivated to maintain their performance to repeat the reward and recognition. 

Negative Incentives

Negative incentives are punishments and consequences imposed to prevent employees from misconduct or breaking company rules and policies. The fear of penalty will encourage employees to meet their performance expectations and refrain from misbehaving. 

For example, fear of getting a black mark or losing their job will prevent employees from being casual, lazy, or unpunctual about their work. 

Let's make a comparison of positive vs negative incentives to understand their varying approach.

Organizations must judiciously combine positive and negative incentives to build a work environment where employees are motivated to achieve their goals without compromising on their behavior or morale. Incorporating the benefits of MBO (Management by Objectives) ensures that employee efforts are aligned with organizational objectives, driving overall success and performance.

Now lets look at the advantages and disadvantages of commission plans with negative incentives.

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Advantages of Negative Incentives

Negative incentives when implemented judiciously can have a great impact on the employee behaviour and the work culture. 

Let us look at some of the advantages of negative incentives: 

Desired Behaviour 

Implementing negative incentives creates a fear of penalty and punishment in employees. Receiving a negative incentive can have an adverse impact on your entire career. Hence, employees will be careful to put their best and desired behaviour in the workspace. 

Enhanced Compliance

Negative incentives for employees can enhance compliance with company policy, rules, and regulations. Fearing the consequences and the undesirable outcomes, employees will refrain from any breaking of regulations. Understanding the incentive structure meaning is crucial for implementing negative incentives effectively and aligning them with organizational objectives.

Maintaining Order and Discipline

Implementing negative incentives will act as a watch guard for maintaining order and discipline in the workspace. Only when there is a system and structure to your office operations can the best and desired results be achieved. 

Fairness and Equity

A workspace must ensure justice and equity for all its employees. Negative incentives help instil such fair practices at work by ensuring that people who engage in undesirable behaviour face the appropriate consequences for their actions. 

Immediate Impact

Negative incentives have a more immediate impact on behaviour and performance than positive incentives. The fear of punishment and avoidance of consequences can prompt individuals to refrain from misconduct and undesirable behaviour.     

Implementing strict negative incentives will bring order and discipline, instil fairness and equity, and thus create a healthy and safe work environment.  

Disadvantages of Negative Incentives

On the hind side, the fear of punishment and penalty can have the opposite impact on employees and the workspace if not utilized judiciously. 

Let us discuss what disadvantages negative incentives can bring to a work environment: 

Focus on Punishment

Fear of being penalized can constrain us in various ways. A culture of fear can adversely affect the work culture where there is a sense of resentment, weakening of trust, morale, and engagement, and the rush to meet deadlines to get the work done. 

Short-Term Solutions

Negative incentives mostly produce short-term goals. With punishments and penalties, individual behavior can be modified only temporarily. On a long-term basis, it cannot make people think about the rationale behind the rules and regulations and the positive side of these desired behaviors. 

Risk Aversion

Negative incentives create a fear of consequences which makes people comply with established systems rather than initiate new ways or innovate. This can constrain individual creativity, innovation, and enthusiasm thereby restricting the company's growth potential. 

Impact on Work Culture

When management overly relies on negative incentives it creates a work environment of mistrust, reduced morale, teamwork, and collaboration. This can severely affect the effectiveness of the organizational management and detriment its growth potential.    

Legal and Ethical Concerns

Organizations must ensure that their disciplinary measures and actions comply with relevant laws and regulations. This ensures that their penalties are applied fairly by following legal procedures without breaking any ethical guidelines. 

In events of undesirable behaviours or actions, organizations must take a strong stand in deciding the proper procedures to be taken. 

However, they must also ensure that these negative incentives are implemented judiciously to prevent any reverse setback.  

Problems with Employee Incentives

Incentives are a powerful motivation tool that can have a great impact on your overall sales operations and company management. Establishing a well-defined sales incentive structure ensures clarity, fairness, and alignment with organizational goals, leading to enhanced performance and increased sales effectiveness.

However, it has its shortcomings that businesses must be aware of to tackle it proactively and make the best use of their advantages. 

Let's look at what these problems are to be tackled:

• Repeated use of incentives to promote all sales activities will diminish the intrinsic motivation of the salesforce. Their whole focus will be on just achieving the goal and being eligible for incentives and rewards. 

• Incentives lead to salesforce focusing on achieving the goals through a tried and tested sales process. It makes them have a tunnel vision on the target, losing their creativity to find alternative solutions for closing the deal. 

• Sales incentives are based on sales performance and target achievement. This can create a sense of inequality and unfairness among the average performers leading to their demotivation. 

• Sales key performance indicators focus largely on individual metrics. This promotes individualism rather than teamwork and collaboration. This individualist approach can have a detrimental effect on the work environment and company culture. 

• Sales incentives often focus on short-term goals that sales forces are assigned to achieve in a quarter. Salesforce becomes short-sighted in their goals and loses sight of the wider perspective on company growth and success. 

• Incentives put salesforce in a race to achieve their quotas and targets within the time limit. This can compromise the customer experience and quality of the sales process which can have a long-term impact on the brand identity.

Businesses must ensure that incentives remain a motivational tool that can drive sales performance and revenue growth. 

It must not be allowed to create an unhealthy environment where the salesforce does not contribute their creativity and innovation in sales operations nor be solely focused on achieving one's individual targets. 

Conclusion

Businesses must learn the judicious use of negative incentives in their workspace. 

Sigal G. Barsade was a business theorist and researcher at the Wharton School of the University of Pennsylvania. She stated that

“All emotions have some type of function value. So fear does have a value. The value, though, usually is to signal that something has gone wrong, something needs to be fixed and it gives energy. 

And though those are positive outcomes, the problem with fear is it can also cause people to become rigid, less creative, unhappy, and it tends to be better in [small] doses.”

Barsade’s view shows that negative incentives must be used only in moderation. Excessive use of it can cause a tyrannical situation and a toxic work environment. 

This can have a severe impact on employee contribution as it constrains their freedom to share their truthful opinion, contribute their ideas and innovation, and even think creatively. 

Hence, the use of incentives must strike a fine balance between positive and negative motivation to ensure a healthy workspace is created which enhances employee engagement and boosts their performance. 

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