The Find: No, says new research which suggests that paying for performance can actually reduce motivation and overall productivity.- The Source: Research by professor Sam Bowles of the Behavioral Sciences Program at the Santa Fe Institute to be presented at the august London School of Economics.
The Takeaway: Managers who get extra cash for results are likely to have increased motivation to meet or exceed their targets, or so the traditional thinking goes, and this is sure to add up to better results for the firm. All wrong, says this latest research which analyzed 51 separate experimental studies of financial incentives. So what does performance related pay actually accomplish? According to the research, overwhelming evidence suggests “incentives may reduce an employee’s natural inclination to complete a task and derive pleasure from doing so.” The bottom line:
Financial incentives may indeed reduce intrinsic motivation and diminish ethical or other reasons for complying with workplace social norms such as fairness. As a consequence, the provision of incentives can result in a negative impact on overall performance.
Forget reforming executive pay because it encourages short term risk-taking or has engendered public disgust during the current crisis. The real reason to rethink many compensation schemes that include performance-related pay may be much simpler: they often don’t work. How can we get incentives right? That “is set to be a hot topic for behavioral economists in the coming years,” concludes the LSE.
Want more insight on the topic? Here’s John Carney writing on Clusterstock about how pay-for-performance can go wrong in financial services companies, while Overcoming Bias reports a study that demonstrates that upping the financial stakes can actually cause people to choke and perform more poorly in a lab setting.
(Image of a man with a vegetable incentive by Finsec, CC 2.0)
