Financial incentives can be used to increase the employee motivation and performance needed to support change. However, upper management should have a clear vision about the change in performance or behaviour that it desires, as it requires different approaches to incentivizing. Intrinsically motivated employees executing interesting tasks and quality outcomes should be encouraged by indirect incentives (eg opportunities to do valued activities) in order to avoid eroding that motivation. Direct financial incentives are effective when extrinsic motivation and quantitative performance need to be stimulated. Upper management should therefore frequently ‘calculate’ the proposed net effect (positive price effect versus negative crowding-out effect) when defining a pay plan. Lastly, if the plan is designed to increase team performance, all incentives should not be distributed equally, as this may harm individual motivation.
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