A Bird In The Hand Is Worth Two In The Bush…Employees Care More About What A Company Has Already Given Them Than What They Might Give Them In Future
With unpaid overtime a more common occurrence than ever in modern business, a Dutch study looked at the motivating factors behind why employees participate in such unpaid work, focusing on the effect of forward-looking incentives, such as bonuses and promotions, and backward-looking incentives, such as current and past compensation. The researchers demonstrate that, contrary to expectations, it is employees with stronger backward-looking rather than forward-looking incentives who are more likely to participate in unpaid overtime.
Key Topics: Motivation; Compensation; Overtime; Forward-looking incentives; Backward-looking incentives
Title of Reviewed Article: Unpaid overtime in the Netherlands: forward- or backward-looking incentives?
Researchers: Peter H. van der Meer (University of Groningen) and Rudi Wielers (University of Groningen).
Publication: International Journal of Manpower, 2015, Vol. 36 No. 3, pp. 254-270.
Setting the Scene
Incentives are a well-established motivating factor in employees participating in behaviours which are desirable for their employer, with one such behaviour being unpaid overtime, which is the working of unpaid extra-contractual hours by employees. Research is mixed in relation to the primary motivating force behind performing such work and has mostly focused on two different categories: backward-looking incentives and forward-looking incentives.
Forward-looking incentives refer to those typically tied to performance and awarded at some point in the future, such as promotions and bonuses, the future outcome of which is usually uncertain (Bell & Freeman, 2001), with the argument being that such future rewards provide the greatest incentive to work hard (Pannenberg, 2005). Research lends support to this idea, with Booth et al. (2003) and Bratti and Staffolani (2007) finding a positive effect of participating in overtime on the likelihood of receiving a future promotion, while Meyer and Wallette (2005) found that participating in unpaid overtime had a positive effect on conversion of employee contracts from temporary to permanent.
Backward-looking incentives, on the other hand, focus more on intrinsic motivation and the employee-employer relationship already established by current and past rewards, such as salary. The argument is that employees will work harder because they are intrinsically motivated by their job and/or they are more committed as they feel fairly treated and well paid by their employer. This concept of reciprocity has received some support in past research (e.g. Fehr & Falk, 2002), with employees referencing past employer actions to determine their own current and future behaviour, as demonstrated by employees displaying high effort levels in response to a company’s decision to hire them (e.g. Williamson, 1985), and the established negative effects of company breaches of the psychological contract (Robinson, 1996).
Recent research suggests that employees who are more motivated by forward-looking incentives may be at greater risk of experiencing detrimental effects on health and well-being (Ryan & Deci, 2000), and that such employees working long hours can lead to greater burnout and work-family issues than for employee that are more motivated intrinsically by their job and their reciprocal relationship with their employer (Van Beek et al., 2012).
The current study looked to better understand these motivating factors underlying employees’ participation in unpaid overtime by examining the role of forward-looking and backward-looking incentives.
How the research was conducted
This study used Dutch OSA labour supply data (Fouarge et al., 1999) from the years 1994, 1996, and 1998. OSA is a large series of data sets relating to the Dutch labour market and its participants, and includes questionnaire data from workers. For the years reviewed, data was collected for 2,292 respondents in 1994, 2,447 in 1996 and 2,323 in 1998.
The data set reviewed included information on the type of jobs individuals had, incentives they had been exposed to, as well as details on their overtime behaviour.
The researchers used the OSA data collected to develop several models to determine the effects of forward-looking and backward-looking incentives. The researchers controlled for various employment and demographic differences.
Key Research Findings
The forward-looking hypothesis predicted a relationship between unpaid overtime and wage growth over time. The results did not find a correlation between these two factors in the data reviewed and as such the forward-looking hypothesis was not supported.
To test the backward-looking hypothesis, the researchers examined the effect of salary level given to an employee on future unpaid overtime behaviour. The results indicated that there was a strong effect of salary level on participation in unpaid overtime, with those on higher salaries more likely to participate in unpaid overtime. These results support the backward-looking hypothesis.
The results also indicated that those with higher education levels and levels of job seniority were more likely to participate in unpaid overtime.
The results identify that participating in unpaid overtime is influenced by the relative compensation level of individuals. Employees who have higher current and historical compensation are more likely to participate in unpaid overtime, while a link between unpaid overtime and wage growth was not found, suggesting that backward-looking incentives prove a more powerful motivational tool than forward-looking incentives. The inference that can be made from these result is that employees, when deciding to participate in unpaid overtime, place greater value in what the company has already invested in them rather than what they may receive from the company in future.
The finding that employees with higher education levels and levels of job seniority are more likely to engage in unpaid overtime is also noteworthy as it supports the idea of the settled employee (e.g. Bell & Hart, 1999), whereby such employees feel more valued and invested in the company and therefore are more likely to participate in unpaid overtime when needed.
Organizational and Reward Implications
The finding that backward-looking incentives are more important in employee participation in unpaid overtime than forward-looking incentives, has implications for reward practice. Often companies’ reward strategies are forward focused, with the focus on salary increases and short and long term incentives, but this study gives reason to consider the value of cultivating the relationship with employees through greater focus on intrinsic motivation, such as greater job satisfaction, and treating employees well and equitably over time so that they develop a sense of reciprocity with their company leading to greater effort and performance without the need exclusively for forward-looking incentives. While being mindful of backward-looking incentives, companies should focus on a balanced motivation structure which also includes forward-looking incentives, in order to be most effective.
Against the prevailing view that forward-looking incentives are the greater motivator to employees, this study highlights the importance of backward-looking incentives in explaining employee participation in unpaid overtime. While this study has valuable conclusions, the research was limited to a four-year period of Dutch data, and so further similar research in a broader context would be useful in further validating the results and help us understand cultural differences.
Source Article: Meer, P. H., & Wielers, R. (2015). Unpaid overtime in the Netherlands: Forward- or backward-looking incentives? International Journal of Manpower, 36(3), 254-270.
Published by: Emerald Group Publishing Limited
For further details and access to the full journal article Click Here (subscription or payment may be required).
Bell, L. A. & Freeman, R. B. (2001). The incentive for working hard: explaining hours worked differences in the US and Germany. Labour Economics, 8(2), 181-202.
Booth, A. L., Francesconi, M. & Frank, J. (2003). A sticky floors model of promotion, pay and gender. European Economic Review, 47(2), 295-322.
Bratti, M. & Staffolani, S. (2007). Effort-based career opportunities and working time. International Journal of Manpower, 28(6), 489-512.
Fehr, E. & Falk, A. (2002). Psychological foundations of incentives. European Economic Review, 46(4-5), 687-724.
Meyer, A. & Wallette, M. (2005). Absence of absenteeism and overtime work: signalling factors for temporary workers? Working Paper Series No. 2005:15, Department of Economics, Lund University, Lund.
Pannenberg, M. (2005). Long-term effects of unpaid overtime: evidence for West Germany. Scottish Journal of Political Economy, 52(2), 177-193.
Robinson, S. L. (1996). Trust and breach of the psychological contract. Administrative Science Quarterly, 41(4), 574-599.
Ryan, R. M. & Deci, E. L. (2000). When rewards compete with nature: the undermining of intrinsic motivation and self-regulation. in Sansone, C. and Harackiewicz, J. (Eds), Intrinsic and Extrinsic Motivation: The Search For Optimal Motivation and Performance, Elsevier, Amsterdam, 13-54.
Van Beek, I., Hu, Q., Schaufeli, W. B., Taris, T. W. & Schreurs, B. H. (2012). For fun, love or money: what drives workaholic, engaged and burned-out employees at work? Applied Psychology, 61(1), 30-55.
Williamson, O.E. (1985). The Economic Institutions of Capitalism. New York, NY: Free Press.
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