A Blog by Jonathan Low


Nov 21, 2016

The Behavioral and Economic Reasons Why Bonuses Dont Always Motivate Employees To Work Harder

If there is one topic that perennially dominates management attention, it is how to optimally motivate employees.

Money has traditionally won because it is the currency of business and, in truth, is the easiest to measure. But as the following article explains, the answer is almost never that simple - and the results of countless economic and psychological experiments explain why.

The desire to work and to do well is based on a complex array of intrinsic impulses. The need to meet basic requirements for survival is definitely one of them. The challenge is that whatever short term gains may be achieved through the reward of bonuses, may actually be negated or reversed in the longer term. This may be especially true in the digitally-driven knowledge economy where competition for employees - and for advantage - is reliant upon a complex set of interrelated factors.

So just as technology is driving convergence between disparate platforms, channels and partners - as well, increasingly between people and robots - so motivation is inspired by a variety of impulses, all of which must be managed effectively to achieve desired outcomes. JL
Shana Lebowitz reports in Business Insider:

Organizations sabotage their own performance by providing financial incentives for hitting certain goals. Organizations would be wiser to tap workers' intrinsic motivation — their desire to do a good job for the sake of doing a good job. Human motivation is complex. Financial incentives can be demotivating. "When we pay, we see an increase in productivity, but we also create long-term disassociation: 'Really? That's it? That's the reason I'm here?'"
If tomorrow, your company announced that they would no longer be paying you for your work, there's a non-zero chance that you would be outraged. In fact, you'd probably quit.
What do they take me for anyway, you'd think, some kind of sucker?
The natural next step in this thought process is that, if tomorrow, your company decided to pay you more, you'd be thrilled and you'd work harder.
As it turns out, this assumption is false — and dangerous.
As Dan Ariely, a professor of psychology and behavioral economics at Duke University, argues in his new book, "Payoff," human motivation is incredibly complex. Financial incentives can't possibly explain it all — and in fact, they can be demotivating.
Ariely explained: "When we pay people, we can see an immediate increase in productivity, but what we don't see is we also create a long-term disassociation, where people basically say, 'Really? That's it? That's the reason I'm here?'"
Ariely and his colleagues came to this conclusion after an experiment at an Intel factory in Israel.
Before the experiment began, a team of employees assembling computer chips worked in shifts, so they'd work for four days and then get four days off. On the first day of the work cycle, the manager would tell the employees that if they hit the target for that day, they would receive the equivalent of about $30 as a bonus.
For the experiment, the psychologists decided to have one quarter of employees receive a bonus if they hit the target and one quarter receive nothing (the control condition). The other half of employees were split into two groups. One group got a voucher for about $30 worth of pizza if they hit the target and the other got a text message from their boss complimenting their work.
As it turns out, cash, the pizza voucher, and the compliment all increased performance on the first day compared to the control group, who didn't receive any reward for their performance.
But here's the kicker: Over the next few days of work, performance dropped significantly among the group who'd received a cash bonus. Meanwhile, among the group who'd received compliments, performance decreased much more slowly so that, eventually, it was about the same as performance in the control group.
Among the group who'd received pizza vouchers, performance wound up in between the cash group's and the compliment group's. Ariely suspects that if those employees had received a fresh pizza pie, instead of a voucher, their performance would have looked more like the compliment group's. That's partly because it would "make them heroes in the eyes of their family" when the delivery person showed up at the door of their home.

So why was money demotivating? Ariely suspects that employees in the bonus group thought something like, "Yesterday you paid me. Now I'm not interested" in performing better.
Ariely's conclusions recall the psychologist Barry Schwartz's insights, which he shared in his 2015 book, "Why We Work."
According to Schwartz, organizations sabotage their own performance by providing financial incentives for hitting certain goals. Organizations would be wiser to remove those incentives and instead tap into workers' intrinsic motivation — their desire to do a good job for the sake of doing a good job.
Ariely's advice for managers?
"Write down some hypothesis about what's holding people back. Is it laziness? Is it not knowing what to do? Is it lack of interest? And only once we understand … what are the building blocks of demotivation, then we can think about how we approach them separately and in a targeted way.
"Instead what we often do is we just come up with this simplified approach of saying, 'Let's give people a bonus. And if we give people a bonus, nothing else would matter.' Well, it's just not true


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