While private sector organizations can use such inducements and threats to increase motivation and performance, public sector executives often cannot offer performance-based pay and have difficulty firing underperforming employees.
These organizations often rely on promotional incentives. To earn a higher salary, workers are told, you have to work hard and climb the ladder.
Erika Deserrano, associate professor of managerial economics and decision science at Kellogg, wanted to find out how well this approach actually works. There was little existing research to support the idea that merit promotions—and the associated pay increase they bring—act as a powerful motivator for employees.
So to learn more, Deserranno conducted an experiment in a relatively new community health program run by Sierra Leone’s Ministry of Health and Sanitation.
In collaboration with Philip Kastrau of IDinsight and Gianmarco Leon-Ciliotta of Pompeu Fabra University, tested a new promotion system that linked promotions to performance. The team also studied what happened when employees learned their supervisors’ salary, a move intended to motivate advancement.
The results gave a clearer picture. For workers who both came under the new promotion system and learned what their bosses were doing, performance improved, with the biggest raises coming from top performers. However, for those who didn’t buy into the new system of tying promotions to performance, learning their superiors’ salaries often led to poor morale and lower productivity.
The results could have implications not only in the public sector but also in the private sector, where genus and racing gaps in the promotion they insist. While much of the private sector is ostensibly meritocracy, women and non-white workers are often excluded from meritocracy. This means they could be less motivated to perform at their best.
As a result, measures intended to incentivize strong performance by highlighting the benefits of progress can fail. “Companies tend to increase pay for higher-level workers without thinking about the effect it has on lower-level workers,” says Deserranno. “A system must be fully merit-based for promotions and pay progression to motivate employees.”
Creation of a new merit system
Sierra Leone, one of the poorest countries in the world, faces a number of public health challenges, including high maternal and child mortality rates. To change this, the Sierra Leone Ministry of Health and Sanitation created a national Community Health Worker program in 2017.
The program established district health units staffed with doctors and nurses that also include a team of 8 to 10 community health workers and a peer supervisor. Community health workers visit households in a village, offering health education, basic medical care and referrals to medical clinics. Both community health workers and their peer supervisors work part-time and usually have another occupation, such as farming or shopkeeping.
Workers earn about $17.50 a month in their role, while supervisors earn about $29.20 – 67 percent more than workers. Supervisor positions only open when supervisors retire (usually at age 55) and are filled by one of the community health workers on the team. Historically, this promotion has not been linked to performance. There is a widespread perception that promotion goes to whoever has the best relationship with the head of the district health unit.
To find out if changing the promotion system from favoritism to meritocracy would improve employee performance, Deserranno and her team conducted an experiment in the fall of 2018 involving more than 2,000 community health workers and 372 peer supervisors their.
Workers were randomly assigned to one of four experimental groups. Half of the health workers were told they would be part of a new merit system in which promotions to a boss would be linked to performance, while the other half remained in the existing system. Within these two groups, half of the community workers were informed of their supervisor’s salary, while the other half were not.
The potential promotion promise
To establish a baseline measure of employee performance, Deserranno and her team asked supervisors to provide an initial rating for each community health worker, ranking them from best to worst. Community health workers were also asked about their perceptions of meritocracy within the system and asked to guess how much their supervisors earned each month. The research team then surveyed households in the villages ten months after the experiment to see how the number and length of visits had changed.
They found that the new merit-based promotion system increased the number of visits by 22 percent in both the group that learned their boss’s salary and the group that didn’t. The length of visits also increased by 15 percent overall.
Improvements were particularly strong among top performers (as ranked by their supervisors), who increased their number of visits by 38 percent. The promise of a possible promotion also seemed to provide a real incentive: workers who expected their boss to retire within the next two years increased their number of visits by 45 percent.
“It shows that the top workers were now more motivated to put in more effort, because it can lead to a promotion,” says Deserranno. “It’s basically a tournament. Only the top person will be rewarded. Although this increase was concentrated at the top, the merit system did not reduce the performance of low-ranking employees. No one has an incentive to put in less effort.”
The promise of higher fees also played a role in the increased number of visits. Those under the new merit system who had underestimated their supervisor’s pay—and then found out it was more—increased their visits by 23 percent.
Meanwhile, knowledge of supervisors’ pay had mixed results in the old non-merit system. Workers’ expectations of their supervisors’ wages turned out to be important: Those who overestimated or guessed correctly did not change their patterns. But those who underestimated their supervisor’s pay and then learned it was more than they thought actually reduced their number of visits by 27 percent.
“They’re crazy,” Deserranno says. “They think the supervisor makes more than they do and there’s no way they can get a supervisor job making more. And when they are unhappy, they provide fewer visits. The extent to which workers were genuinely unhappy with the progression of wages and no meritocracy was surprising. The drop in visits was equal to the increase in visits to the merit system.”
Paid promotions increase work — but only if they are feasible
Although the experiment took place in a very specific context, the implications are broad, including for the US, as women and people of color are less likely to be promoted, and even when they are high performers, they are more likely to see the system as not meritorious. If their hard work is not rewarded with promotion, it could lead to low morale and poorer performance.
Similarly, the wide wage gap between bosses and workers can hurt US organizations as well. The difference between what a CEO does and what an average worker does is constantly increasing, but even less pronounced inequalities can have negative effects. If middle-management employees find out that their boss is earning significantly, it could lower morale—unless they believe their organization is truly meritocratic and have a realistic chance of advancement.
“If you raise the pay for the boss, that’s good for the boss, but the people at the bottom are going to be mad,” Deserranno says. “If the system is not meritocratic, it can fail.”
