Motivation 101: 7 Ways Cash Incentives Don’t Work

I recently spoke at a local high school about motivation. I’m not a motivational speaker, trying to pump up or inspire the crowd. Instead, I’m more curious about motivation. We find so many ways to sabotage ourselves and are oppressed by procrastination, fear, and resistance. Why?

I find Daniel Pink’s work on this subject astounding. I got to speak with him about motivation, and I’ll share those details in the future, but today I want to share the most surprising ways that money and extrinsic motivators (cash, bonuses, big prizes, basically external incentives) aren’t effective motivators.

Disclaimer: if you’re interested in the specific situations in which extrinsic motivators DO work, pick up a copy of Dan’s excellent book, DRiVE.

Here’s the list:

1. Pay incentives don’t increase motivation. In fact, they actually decrease motivation.

In 2009, the London School of Economics examined over 51 studies of “pay for performance plans and concluded that pay for performance plans have an adverse impact on overall performance.

2. Incentives damage creativity by narrowing an individual or team’s focus to the prize instead of solutions.

One study presented a “candle problem,” asking participants to attach a candle to the wall so that the wax doesn’t drip on the table.

The participants were split into two groups. One group got a pay incentive to solve the problem; the other did not.

Which group solved the problem faster?

The incentivized group took almost four minutes longer than the group that worked the problem without a bonus on the line.

3. Incentives and rewards crowd out good behavior.

The AARP asked lawyers to reduce their fee to $30 per hour to help needy retirees. The lawyers’ answer was a resounding no.

Then, the AARP tried something surprising. They asked the same lawyers if they would help needy retirees for free, and the answer changed to an overwhelming yes.

Another example: Swedish economists once tried to incentivize blood donations in a study and noted a 52% decrease in blood donation participation when pay was attached to the act of donating blood.

As it turns out, incentives ruin the feelings of performing an altruistic act.

4. Incentives reward cheating, shortcuts, and unethical behavior

In 2000, economists studied a group of child care facilities in Israel. If parents were late picking up their children, there was no penalty. The teachers simply had to stay late.

During the first four weeks, the economists studied the habits of these parents and how many arrived late each week. Before the fifth week, they implemented a “late charge” each time a parent picks up their child late.

There are carrots and sticks, and this stick/punishment was a profound failure. The number of parents picking up their children doubled after the implementation of the late charge.

Why? The late charge shifted the consequences of their actions. Forcing a teacher to stay late is a moral issue that speaks to our motivation more profoundly than the late charge, which tells us that it’s okay to buy extra time.

5. Incentives are addictive

Being paid a bonus to perform a task can create extra motivation in the short term, but in the long term, much like more drugs are needed to get “high,” more incentives are required in order to get the same motivational effect.

In fact, using incentives as a reward once, and then not offering them for the same task, reduces performance over time.

If you pay a teenager to take out the trash once, he’ll expect payment every time he does it.

6. Incentive-based motivation fosters “short term” thinking

The desired behavior vanishes when incentives are removed. Prizes for quitting smoking or losing weight can work, but they aren’t likely to be sustainable. The relapse rate is higher when incentives are attached to the initial goal.

7. Reduces overall performance

If these collective reasons don’t convince you that incentives can reduce performance, perhaps another interesting study result will seal the deal.

Economists recruited 87 participants and asked them to play games requiring skill, creativity, or concentration. They offered three reward levels for reaching certain milestones in the game.

Those receiving medium-sized bonuses performed no better than those who received small bonuses. The group working with the highest incentive level performed the worst out of all three groups.

Final Thoughts

Motivation is more complex and nuanced than everyone in the business world seems to think. Just take a look at any company’s incentive plan and how tied it is to money and prizes.

In the future, I’ll take a look at tactical ways people from all walks of life can used some new-school motivation principles. Perhaps I can uncover the formula for creating unstoppable authors, inspirational business leaders, and parents/teachers who can deeply connect with their children and students.

Stay tuned.

Fred Venturini

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