Bonu$$ = Poor Performance!

Don’t offer your employee another Bonu$$ unless you want poor performance! (3 min read)

Are you using the carrot and the stick motivation style or the drive motivation style to run your business?

 

The next time you offer an employee a financial incentive expecting to get better results, consider the following: An extensive study that was conducted in the US, England and India by economists from MIT, University of Chicago, Carnegie Mellon University, London School of Economics and sponsored by the Federal Reserve Bank. This study concluded that FINANCIAL INCENTIVES cause a negative impact on the overall performance . This scientific fact was explained by Dan Pink in “The Puzzle of Motivation.” Here is my summary on the power of incentives:

 

The Carrot and the Stick Style The Drive Style
Financial incentives and Rewards work GREAT only when mechanical results are expected. When cognitive or conceptual results are expected the best reward is TRUST: Autonomy (ability to make decisions) Mastery  (getting better at what matters) and Purpose (understanding the why and being involved in the service of something bigger than oneself)
Problems are Mechanical when they have:

Clear set of rules

Single possible solution

Narrow focus

Routine tasks

Restricted possibilities

Concentrate the mind

Zoom straight to goal

Problems are Cognitive or Conceptual when they have:

Miss defined rules

Unclear solution

Non obvious end

Surprise situations

Concentration

Creativity

20th Century tasks. The solutions are routine, rule based and require Management 21st Century tasks. The solutions are on the periphery. they are tasks that require engagement. SELF DIRECTION
These types of problems are easily outsourced or hired out, automated easily, solved by software and performed at a lower cost. These types of problems ought to be assigned to talented, capable, self motivated individuals engaged with your purpose. Motivated by the recognition of their true value to the process and to the organization.
Uses Extrinsic Motivation: You engage people in your organization based on an external reward (Carrot) or a consequence (Stick). Uses Intrinsic Motivation: Engage people in the organization based on an internal desire to do things because they matter, because they like them or because they understand that they are important.
Incentive: Money Bonus, commissions, perks, incentives based on measured results. Consequence: usually loss of privileges or opportunities for advancement Incentive:  Fair and adequate pay for making a difference, improving processes, establishing norms etc… Get the issue of money off the table and give a lot of autonomy if you have the right person for the job.
It connects people to “what” you do and they will work for your money. It connects people to “why” you do what you do and they will work you with blood, sweat and tears.
Engages the Left side of the brain in charge of mechanical responses Engages the Right side of the brain in charge of cognitive or conceptual responses.
Results of the study: Bonuses and financial rewards work well ONLY when mechanical skills are required to solve problems. The higher the pay, the higher the performance. Results of the study: A larger reward leads to poorer performance when rudimentary cognitive or conceptual skills are required to solve problems. The financial incentives destroy creativity because they narrow the mind when concentrated on the expected reward.  They often do more harm than good.
Rewards work only under a very narrow set of circumstances.

 

In 8 of the 9 tasks in 3 experiments, higher incentives lead to worse performance.

 

Keep in mind that these test begun with the reward being offered or expected before the work was done! Not as recognition of high performance and in response to first producing excellent results. Employees counted on the bonus and worked on tasks with the financial incentive in mind (carrot and stick). When no bonus was offered, they were told what was expected of them and they became creative to come up with a solution (drive).

In conclusion, the secret to high performance in this study is not rewards and punishments but the DRIVE to do things because they matter. The science confirms it and the only way to improve a business is to move into the 21st Century motivation style which is bringing out the drive in people. More than ever, it is important for organizations to have a clear vision of what they want to achieve and engage employees in the process as opposed to passive collaborators in the growth and future of the business. Achieving this is not easy as change never is. However, -hang in there- because it is possible! Every change starts first in the mind and if you see a better picture of what you need to adjust… then your change has already begun. You are now ready to make a plan and make it happen.

 

Thank you for reading. Success to me is not reaching everyone but making a difference in someone’s life and business. So if anything I mentioned resonated with you, please leave a comment below and tell me about it. Your insights are so valuable to me and they may also inspire others beyond my simple words.