Incentive Salience and the Performance-Turnover Relationship

The origin of a theorized relationship between performance and turnover actually begins in economics, with some of the earliest work being nearly as old as management science itself (March & Simon, 1958). Psychologists later modified the earliest models, but it was not until sociologists entered the fray that Dreher (1982) argued that high-performing employees were less likely to quit, making the relationship between performance and turnover linear and downward sloping. However, a few years later Jackofsky, Ferris and Breckenridge argued that the relationship between these variables was actually curvilinear, or U-shaped. Since then, there has been a thorough verification of this relationship by a variety of reputable scientists (Allen & Griffeth, 1999; Salamin & Hom, 2005; Jackofsky, Ferris, & Breckenridge, 1986). However, even the most recent research struggles to explain the underlying phenomenon that causes this curve (Sturman, Shao, & Katz, 2012) and some work continues to question whether the relationship is curvilinear or linear (Batt & S. Colvin, 2011). However, this paper will assume a curvilinear relationship, as a significant majority of available academic literature on this subject has shown the relationship to be curvilinear. While some rational justifications have been given for this phenomenon, it is the primary goal of this paper to help explain the root cause of this curve at a basic psychological level.

Does the psychological principle of incentive salience explain the curvilinear relationships between performance and turnover? Yes, the psychological principle of incentive salience does explain the curvilinear relationship between performance and turnover. One acknowledged potential contribution to the curvilinear relationship between performance and turnover is the manner in which reward mechanisms are perceived (Sturman, Shao, & Katz, 2012). Recent research into “incentive salience” has explained the underlying neural mechanisms affecting this process, and has shown that this process is in effect in the work environment (Jeffrey & Adomdza, 2011). Incentive salience is, in essence, reward perception. While low-performing individuals have been shown to perceive rewards as unobtainable, or unfair, in relation to their output, high-performing individuals perceive their own output as above and beyond the rewards they receive. Thus, both high- and low-performing individuals have a low level of incentive salience within their organization, explaining the observed curvilinear relationship between turnover and performance.

Research into this area has practical importance for practitioners of management. By understanding the underlying psychological determinants of turnover, managers can effectively manage valuable high-performing employees in such a way as to mitigate the tendency for high turnover, and help to utilize these employees to contribute to organizational goals. It should be noted that in this paper, the term turnover is used to mean voluntary turnover; in other words, only those cases where employees choose to leave their employment of their own volition will be considered. The curvilinear relationship between performance and turnover is well-documented in management literature (for one such example, see Jackofsky et al (1986), page 109), but we will see that the psychological principle of incentive salience explains this relationship.

Before discussing the role of incentive salience in the performance-turnover relationship, some review of the research into incentive salience is necessary. As explained by Zhang, Berridge, Tindell, Smith, and Aldridge, “Incentive salience is a mechanism to explain motivational values of specific learned stimuli and associated natural rewards in humans and animals” (2009). This is often explained as incentive salience being a ‘wanting’ rather than a ‘liking’, where the former is a desire or a drive for something that you expect to ‘like’, while the latter is a hedonic impulse, as in rats that prefer noxious tasting saltwater to sugar water when salt-deprived because of the brain’s hard-wired need for salt (Tindell, Smith, Pecina, Berridge, & Aldridge, 2006). Indeed, we humans have much brain structure in common with rats, and also have the ventral pallidum where the brain triggers ‘like’ responses via an increased rate of neuron firing. It is this neuron activity that tells us what we ‘like’, which can ultimately lead to a desire or ‘want’ for anything from food to money. While the aforementioned study pertains specifically to rats, research has shown that incentive salience is a factor in the activity of human beings as well, particularly dealing with drug addiction that persists long after substantial tolerance has dulled the enjoyment one receives from drug use (Robinson & Berridge, 2008). Thus, we can say simply that incentive salience is in play in the human mind.

Sturman et al (2012) include in their research an excellent review of performance-turnover research to date, but suffer from the fact that no simple explanation for the curvilinear relationship exists. Rather, the theories behind the relationship are largely conjecture, even if said conjecture is largely rational. Much of this attempt to explain the relationship began when Jackofsky et al (1986) showed that the curvilinear relationship exists. In samples of highly varied industries, a very clear U-shape relationship was shown between performance and turnover; low-performing and high-performing individuals were more likely to quit than average-performing employees. Sturman et al try to justify this relationship by pointing out that low-performing individuals are likely to resent their received rewards in companies that base rewards on performance. Low performers may perceive these rewards as unobtainable or ephemeral, leading to increased dissatisfaction that could easily lead to an employee quitting. On the other end of the scale, high-performing individuals are likely to perceive performance-based rewards as insufficient in relation to their performance. As a result, these high-performers will seek employment where they feel rewards will be more appropriate. While the exact mechanism has not been previously identified, I argue that some commonality is shared between low- and high-performing individuals. Thus, we can say that low- and high-performing individuals must share some perspective that impacts their turnover rate.
Can we extrapolate from the earlier discussion on incentive salience that this has some role in an organizational setting? Take, for example, research done by Jeffrey & Adomdza (2011) that compared the impact of various rewards on employee performance. In this study, employees in one organization were enrolled in a cash incentive program while employees in another similar organization were enrolled in a non-cash incentive program featuring gifts such as travel. Ultimately it was found that non-cash incentives result in more substantial improvement gains, as employees perceive these incentives as more salient; employees think about these incentives more often, and tend to think of the excitement that came with the typically luxurious non-cash items as more desirable than the usually mundane things that would be done with comparable amounts of cash. The results of this research have been confirmed in other studies (Chiang & Birtch, 2008; Morrell D. L., 2011). However, it would be a fallacy to say that incentives will change low performing employees into high performing employees, or that bad incentives would do the opposite. The actual result will be some improvement in aggregate performance, based on each employee’s relative desire to receive incentives. Thus, we can say simply that incentive salience impacts employees in an organizational setting.

So, we can perhaps state that the reward mechanism shared among all employees is incentive salience, which could impact employee decisions in the organizational environment. The real question then is the connection to the performance-turnover relationship. Early research on the reward-turnover link was summarized in a model of employee turnover behavior (Allen & Griffeth, 1999) which was later conceptualized into a survey instrument (Allen & Griffeth, 2001); the result was an indication that reward perception impacted turnover as it had a moderating impact on satisfaction. Reward perception – which could be perceived as the level of incentive salience – was found once again to impact turnover in a 2005 study of Swiss bankers; bonuses and promotions that skip job levels were noted to have an especially significant impact in deterring turnover (Salamin & Hom, 2005). In both of these studies, turnover is increased when rewards are perceived to be inadequate; or, in other words, when incentive salience is low. Thus, we can say that low levels of incentive salience lead to increased turnover rates.

So, could it be that low- and high-performing employees have similar perceptions of incentive salience, which are lower than average-performing employees? It should be clarified that it is not their absolute perception of incentive salience which is lower, rather it is their intra-organizational incentive salience – their perception of rewards within their own organization – that is low relative to average performers. In order to determine if low- and high-performing employees share some perceptions, I believe it is necessary to look at research that could prove the intra-organizational level of incentive salience for each of those types of employees respectively.

First, let us look at the example of a low-performing individual and their level of incentive salience in the organizational environment. Aforementioned research by Allen & Griffeth (2001) measured the level to which respondents felt that rewards were contingent on performance in their work environment. High levels of reward contingency were found to be associated with a positive relationship between satisfaction and turnover, and while the opposite was not found to be statistically significant in the research (owing largely to a small sample size), it could be argued that low levels of reward contingency could negatively impact the relationship between satisfaction and turnover. A low-performing individual would then benefit less from working in an organization with a high level of perceived reward contingency, and the decreased satisfaction could lead to an increased chance to quit the company. Therefore, a low-performing individual is unlikely to perceive rewards as personally attainable. Thus, low levels of intra-organizational incentive salience are experience by low-performing individuals, making them likely to quit.

Similarly, high-performing individuals are unlikely to perceive rewards as commensurate with the level of their own output within the organization with which they are currently employed. Research into Swiss bankers (Salamin & Hom, 2005) includes work that can be used to exemplify this. In an extensive survey, Salamin & Hom found that high-performing Swiss bankers were more likely to quit than were their average-performing counterparts. In an attempt to explain this, Salamin & Hom offered several theories. Some were culture-specific, such as a Swiss survey that showed a high rate of desire to leave one’s job (Salamin & Hom, 2005); more general theories included the high mobility experienced by high-performing bankers, who are likely to have skills that are rare and desirable in their industry. Since high performers are in demand in this industry (and others) they are likely to be enticed by other employers with benefit packages, pay, or other incentives. Consequently, the level of incentive salience they perceive in staying loyal to a given company is low, and the incentive salience of switching companies is high. Thus, low levels of intra-organizational incentive salience are experienced by high-performing individuals, making them likely to quit.

Turnover is a complicated phenomenon which managers must work hard to minimize in order to keep valuable employees. Turnover is not impacted solely by incentive salience; many other factors influence the rate of turnover. Some of these, such as self-monitoring, locus of control, proactive personality, risk aversion (Allen, Weeks, & Moffitt, 2005), motivation (Lindenberg & Foss, 2011), creativity and the seeking of feedback (M. de Stobbeleir, Ashford, & Buyens, 2011), and organizational commitment (Rutherford, Park, & Han, 2011) are dependent solely on the individual employee. Organizational factors, such as the use of pay for performance (Bayo-Moriones, Galdon-Sanchez, & Martinez-de-Morentin, 2010), the rate of improvements to working conditions (Chen, Ployhart, Thomas, Anderson, & Bliese, 2011), organizational support (Dawley, Houghton, & Bucklew, 2010), collective affective commitment (Gardner, Wright, & Moynihan, 2011), and family-friendly policies in the workplace (Lee & Hong, 2011) may be more or less beyond the control of a manager. Even more beyond a manager’s control is the level of economic volatility (Direnzo & Greenhaus, 2011), which is a significant factor in an employee’s feeling of commitment to a company. Ultimately, a manager’s ability to reduce turnover of high-performing individuals will rely more or less on his leadership style (DeConinck, 2011). To this end, it is encouraged that managers perceive avenues to improve the level of incentive salience that their employees feel, particularly by selecting an appropriate leadership style, with the goal of reducing turnover.

I believe the curvilinear relationship between performance and turnover can be partially explained by incentive salience. In essence, both low- and high-performance employees in the organizational environment share comparable perceptions of incentive salience; they tend to have lower levels of intra-organizational incentive salience, which then leads to increased levels of turnover. First, low- and high-performing individuals must share some perspective that impacts their turnover rate. Second, incentive salience is in play in the human mind. Third, incentive salience impacts employees in an organizational setting. Fourth, low levels of intra-organizational incentive salience lead to increased turnover rates. Fifth, low levels of intra-organizational incentive salience are experience by low- and high-performing individuals, making them likely to quit. Therefore, incentive salience explains the curvilinear relationship between performance and turnover. It is crucial that management practitioners understand this relationship in order to effectively manage, as well as retain, vital high-performing individuals. However, this theory is not without its limitations. Further research would be needed using laboratory settings or survey instruments to measure the relationship between incentive salience, turnover, and performance directly. In this way, it would be possible to prove this relationship exists, and to what extent.

Works Cited

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(Header image credit: jepoirrier.)

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Incentive Salience and the Performance-Turnover Relationship by Steve Richey is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.

This post was originally submitted as part of a class on Management Fundamentals.

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