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7 Reasons Bonuses and Incentives Don’t Work (& What Actually Does)

Andrew Syrios
4 min read
7 Reasons Bonuses and Incentives Don’t Work (& What Actually Does)

Motivating others has always been a fairly difficult task. That’s true whether it comes to employees, vendors, our children, colleagues—or even ourselves for that matter.

As it turns out, it appears that one of the main reasons for all these motivation challenges is that we’ve been going about it all wrong. The problem is that people aren’t motivated by what we would think from having sat through Economics 101 in college. Yes, people do respond to incentives, but there’s a lot more to it than that. Furthermore, how they respond to incentives is far different than we had previously thought.

I came to this conclusion from reading Daniel Pink’s excellent book Drive: The Surprising Truth About What Motivates Usir?t=biggerpocke0a 20&l=am2&o=1&a=1594484805. Pink walks us through the history of motivation, which starts at what he calls “Motivation 1.0.” This would include things like eating, drinking, sleeping, finding shelter, and trying not to get eaten by a mountain lion.

Sometime around the Industrial Revolution, firms became so large that a more thorough system of motivation needed to be implemented. The only thing that could be compared to these new massive firms was the army, so the early theorists in “scientific management,” such as Frederick W. Taylor, borrowed heavily from the military model. This is the good, ole-fashioned “carrots and sticks” model of motivation. If you do something good, you get rewarded, and if you do something bad, you get punished.

Makes sense, right?

The only problem is that while such a model may have worked back in the day when people were stuck in textile factories doing repetitive tasks, it doesn’t seem to work very well with what Peter Drucker calls the “knowledge worker.” As Daniel Pink thoroughly lays out, the evidence clearly indicates that such “if-then” rewards actually hinder performance. For example, he notes that:

“In 2009, scholars at the London School of Economics… analyzed fifty-one studies of corporate pay-for-performance incentives. These economists’ conclusion: ‘We find that financial incentives… can result in a negative impact on overall performance” (Pink 39).

So basically, you’re paying employees extra for reduced performance. Or perhaps you’re paying your children off for worse behavior. Or perhaps you’re inspiring all sorts of ill behavior in all sorts of people, including perhaps yourself. It’s something that’s strongly worth considering.

Pink lays out seven major reasons that the “carrots and sticks” motivation doesn’t work. They are as follows.

7 Reasons Bonuses and Incentives Don’t Work (& What Actually Does)

1. They can extinguish intrinsic motivation.

Pink focuses on intrinsic motivation a lot. (That is the basis for what he recommends, Motivation 3.0.) For people to truly excel at something, they must want to do it. Yes, you can bribe someone to do something with money, but once the bribes go away, so does the effort. This is what has happened with experiments in paying students and what almost always happens when someone tries a crash diet. After the person hits their target weight, they balloon right back to where they started. Long lasting results require intrinsic motivation.

Related: How to Motivate Yourself and Others With an Internal Locus of Control

This boils down to what Pink calls the “Sawyer Effect,” named after title character in Mark Twain’s classic The Adventures of Tom Sawyer. In the book, Tom tricks his friends into not only painting his parent’s fence for him, but actually paying Tom for the “pleasure.” He does this by pretending that he enjoys painting the fence and doesn’t want to let anyone else join in. The idea is that if you pay for something specifically, it makes it feel like work and they won’t go at the task with as much enthusiasm. And if you act as if something is fun, you don’t need money because you enjoy doing it anyway. After all, everyone knows that we put more effort into things we actually want to do. And that’s true for employees, children, siblings, spouses, friends, colleagues, and the like.

2. They can diminish performance.

As noted above, research has consistently shown that such incentives actually reduce performance, and they do so at a pretty penny.

3. They can crush creativity.

Studies asking participants to solve a creative problem have generally shown that participants perform worse if there is a financial incentive. This may sound counter intuitive, but the reason is it seems to add pressure and also narrow the focus of the individual. People without such potential rewards feel freer to explore creative solutions.

4. They can crowd out good behavior.

Pink cites a study in Sweden that offered people who’d expressed interest in donating blood seven dollars if they actually donated. Thirty percent of those who were paid donated blood. Of the control group that wasn’t paid, 52 percent donated. It seems that offering people money for a good deed removes that warm and cuddly feeling we get inside when we do something charitable. It just becomes work. And donating blood for seven dollars just isn’t worth it.

5. They can encourage cheating, shortcuts, and unethical behavior.

This one is pretty obvious. If for example, you offer people money to hit a certain number in sales, that creates an incentive to cheat. We have seen this kind of thing recently with some of the cheating scandals involving teachers judged on the students’ test scores.

Related: The 7 Indispensable Team Members of a Property Management Company

6. They can become addictive.

People can become so accustomed to these types of incentives as to simply expect them, or even need them. Indeed, we’ve given one-off bonuses as appreciation to employees before that actually came back to bite us. That same employee simply expected it next year (or the next time they did a similar task) and was far more disappointed by not getting the bonus then they were enthused to get it the previous year. We basically paid money to get an upset employee.

7. They can foster short-term thinking.

Think of those corporate bonuses based on last quarter’s stock price. Can you see how that would incentivize just about anyone from the CEO to the salespeople to engage in short-term thinking instead of long-term, strategic thinking? Spoiler: Long-term thinking is better.

So What is the Answer?

At this point, I hope I have convinced you that “if-then” rewards, incentive-based compensation and bonuses are not a good way to motivate people in any part of your life. But what’s the solution? I will save the bulk of that discussion for next week. But in brief, Pink recommends trying to inspire a person’s “intrinsic motivation.” Regarding compensation, make it so it’s not an issue by paying enough to satisfy the employee (assuming that number is reasonable, of course). But from there on out, you need to find other ways to motivate someone. This can include providing challenges to overcome, opportunities to grow and learn, a fun and exciting work environment, a chance to “make a difference” and a chance to progress personally or professionally.

We’ll explore those ideas next week. Until then…

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How do you personally motivate those in your business?

I’d love to hear from you. Comment below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.