You could believe a high level of reward would be always the perfect choice to improve motivation. This is not completely true, any rewards received is relative to inputs (time and effort) and to others.

It is counter-productive to give everybody the same pay, it is the ratio of effort to reward that should be fair and compared to peers. A salary compression could lead to perceptions of inequity by people who were the best performers even if they receive a pay rise. For the same reason, a high bonus could not motivate an employee if he knows this bonus is lower than the bonus received by his team. This notion of social comparison, is the fundamental principle that underlies the idea of equity.

Inequity can lead to turnover, burnout, stress, negative affect.

It’s important to make sure that the inputs people use to evaluate equity ratios, are relevant and important for the organization; metrics like level of education of years of experience can severely bias perceptions.
Effort, actual deliverables and actual work done could be more effective.

Situations of inequity can arise because you are rewarding with things that your employees don’t really desire, they don’t really value or want.
It’s really important to have lines of communication open, when you suspect that there could be temporary situations of inequity.

It’s really important to understand that the schedule of reinforcement, when and how a given reward is distributed matters greatly.

The most prevalent schedules of reinforcement in contemporary organizations are fixed interval and fixed ratio but they are not the most effective ones.

By fixed interval I mean you receive a reward after a fixed time interval, such as you receive a paycheck at the end of the month.
A fixed ratio is when you receive a reward after a fixed number of responses or sales.

One of the reasons slot machines are so addictive is because they’re based on the variable ratio schedule of reinforcement. The probability is constant, but the number of lever presses needed to win is variable.

Research let us know that variable reinforcement schedules lead to high level of motivation, engagement and performance.

EFFECTIVE FEEDBACK

To have full alignment between goals, behaviors, and rewards, we need to give people feedback on how they’re doing with respect to those goals.

Performance appraisals have specific functions: to evaluate, to develop, and to motivate.

One of the most effective things you can do in a performance appraisal is to temporally separate evaluation from development.

Performance appraisals are difficult because both sides bring with them cognitive biases:

  • Fundamental attribution error: you tend to attribute successes to your skills and capabilities, and failures to external attributions. This attribution flips when you think of others;
  • Illusion of transaparency: you believe you’re more transparent than you really are. You may believe that the goals, the expectations, the feedback you communicate is abundantly clear, but they are not.
  • Self-fullfilling prophecy: observer has an initial impression about the target, target then behaves to conform to the observers expectations, as a result, the observer’s initial impressions are confirmed and further reinforced.

PROVIDING CRITICAL PERFORMANCE FEEDBACK

  • Dont’wait;
  • Focus on behaviors and not on personality;
  • Focus on a few key behaviors;
  • Be specific;
  • Do not “sandwich” or “sugarcoat”;
  • Confirm understand;
  • Follow up with positive reinforcement when seeing desired changes.

Notes from: Leading People and Teams Specialization