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Paying More Doesn't Always Pay Off: Elizabeth Dunn On Employee Incentives
Economics | May 21, 2013

Paying More Doesn't Always Pay Off: Elizabeth Dunn On Employee Incentives

"Salaries and bonuses are generally effective—if limited—motivators," Elizabeth Dunn and Mike Norton, her Happy Money co-author, write in The Washington Post. "But the nuanced psychology of reward suggests that despite the allure, the power of money can wear off." This may come as a shock because most of us, when asked, would admit to never turning down the prospect of a raise. But, as Dunn writes in the article, "a growing body of research shows that, in some cases, paying people more not only fails to change their behavior but actually makes them perform even worse." If money isn't everything, what can an employer do to motivate their employees?

According to the research in Happy Money, time turns out to be a powerful incentive that boosts worker morale and productivity. And, in some cases, it can even improve profit margins and make businesses more successful. Giving workers the option of making their own hours rather than sticking to a rigid 9-5 schedule is one way that Dunn proposes leaders can compensate their team members with time. "Not only do employees rewarded with flextime like their jobs more, they also have lower absenteeism and better performance," she writes in the Washington Post article. "In fact, firms that adopt employee-centric mindsets and offer flextime have even been shown to be more profitable." Aside from that, giving workers more time off in general—whether it's the option of taking a sabbatical, having more vacation days, or simply being encouraged to have one night a week free from work—is an effective incentive.

Money can however, be beneficial if companies get creative in how they dole it out to their employees. As Dunn writes in the article, giving people cash bonuses that they have to give to a colleague (either directly or in the form of a gift) tends to work well. It not only makes the person who gives the reward away happy—because Dunn's research shows that giving to others increases happiness—but it also enhances the sense of camaraderie in the office. "We are not suggesting that employees would perform optimally if their rewards came solely in the form of more days off or more money to spend on their colleagues," the authors stress in the article. However, they do suggest that these kind of creative incentives can contribute to happier employees when money alone is not enough. In her book, and articles like this one, Dunn explores the relationship between money and happiness. She presents her 5 principles to happiness both on stage and on the page—teaching all of her audiences how to make "happier purchases," no matter what their income.
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