Managers are always looking for ways to motivate team members and make work more fun. The concept of a relative incentive might sound appealing. This tactic can work, as long as you structure teams properly, say researchers from the Kellogg School of Management at Northwestern University.

Relative Incentives Defined

Dylan Minor, and fellow researchers, studied how well relative incentives work in an organizational environment. A relative incentive is a reward “based on how an employee’s work ranks among team members.” If you’ve been working hard on building a strong culture, you’re probably asking what happens to the team if they are competing against a fellow team member for a bonus. That’s an excellent question and Minor’s research resulted in good solutions for that situation.

The purpose in offering a relative incentive is to motivate the team to work harder. For example, perhaps you plan offer team members the opportunity to earn a bonus based on their level of output. Particularly fast workers would stand to earn more than slower workers.

That outcome might cause some grumbling among team members. The incentive plan could also bring about some undesired behavior. Employees are smart and they will quickly figure out the weak points in any incentive system. 

Incentive Plans for Caring Cultures

When competing for a relative incentive, all of your employees might get together and agree on exactly how hard they’ll work. This strategy is popular among workplaces with caring and benevolent cultures. If you’re running a nonprofit organization, you might have a high number of caring employees. A successfully designed incentive program in this culture may be one that allocates “prizes based on the whole group’s performance.” 

Ideal Teams for Relative Incentive Plans

Researchers also report that employee agreements to "game the system" are often instigated by one "selfish" person. Those individuals, generally seen as strategic thinkers, are most likely to pull people together to talk up their plan to work the incentive to the outcome they most desire. For example, they might get everyone to agree not to work very hard, thus ensuring that a reward will come their way no matter what. The trouble increases if you put more than one "selfish" person on a team. While these folks may superficially agree to a grand plan, they are more likely to “stab teammates in the back and contribute more effort, thus grabbing more prize money.” Before you know it, employees are arguing and conniving and not working harder or more efficiently.

Few employees want to be involved in a “dog-​eat-​dog” world and that feeling extends to the workplace. To motivate and reward your employees, “consider using different incentive schemes for different teams, depending on the personalities of people in each group.”