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Picture courtesy- Kerr (1995)
Firstly, let’s look at an important and the first aspect of ensuring fair rewards called the ‘Equity theory’!
Take a small example and tell us what would you prefer?
$2000 bonus, but it is the smallest in your team
$1000 bonus, but it is the largest in your team
Option 1
$2000 bonus, but it is the smallest in your team
$1000 bonus, but it is the largest in your team
Option 2
The answer to this question sums up the ‘Equity theory’. I am sure many of us would prefer Option 1 compared to Option 2 because it is all about comparison with other team members and how much we are valued at work. There was a classic case of Gravity Payments a company in New York whose CEO significantly reduced his own million-dollar pay package and Set a minimum salary to be $70,000 in three years (starting with a first raise in 2015). Contrary to what was expected to happen that should have made the employees happy the company ended up facing a backlash against the raise that roared and it was majorly reported in all popular dailies including the New York Times. Look at some below news snippets:
Interestingly the consequences of Inequity might cost you and your organization not limited to the following behaviours
So, it is very important to recognize the rewards people value and also strive for equity in the long-term.
Now the second most important aspect of rewarding is to avoid folly of rewarding A while hoping for B called the ‘A/B folly’
Please keep in mind that as leaders and organizations we must encourage and Expect risk taking but reward not for accomplishing a goal but rather on conforming to risk taking behaviour. Just take this scenario where a single mistake for which you are blamed due to not accomplishing the goal can offset many successes and result in your being labelled and limited in future assignments and promotions.
Also, we should keep an eye on what we expect and what are we really rewarding? Look at some insights from a survey done to understand this better.
So, in order to address the A/B folly we need to ensure the following corrective actions:
In our next article we will look at different Types of Reinforcement that can drive positive behaviour within your teams. Until then Happy Rewarding! 😊
