When Bonuses Backfire

There are certain truths that no one wants to hear. A notorious example in the case of workplace studies has to do with open offices. Despite the many proven negative effects of open offices, the news falls on deaf ears of decision makers. Plain and simply, open offices hurt productivity, and workers hate them. But employers continue to use them, touting their team-building nature, which isn’t supported by any evidence. The decision makers also usually fail to mention that open offices are much cheaper than other kinds of office designs, and that open offices make it easy for management and executives to literally watch their employees work. Another example of business decisions flying in the face of research has to do with intrinsic and extrinsic motivation. How do different incentives increase or decrease an employee’s drive to do good work?

Bosses want to believe that tangible rewards, like bonuses, motivate people. Bonuses are easy to set, measure, and dispense, especially if you dangle them in front of employees like a carrot, as is the case with a performance-based bonus. Rewards are convenient. But a meta-analysis of research shows that they don’t necessarily boost motivation, and in certain situations, they actually undermine it. “[A] meta-analysis of 128 laboratory experiments confirmed that, whereas positive feedback enhances intrinsic motivation, tangible rewards significantly undermine it,” according to Gagne and Deci (2005), citing Deci, Koestner, and Ryan (1999).

Even that finding isn’t entirely straightforward. In the same 1999 work, the authors found that “when rewards were given independent of specific task engagement (as might be the case with a salary) or when the rewards were not anticipated (as might be the case with unexpected bonuses), tangible extrinsic rewards did not undermine intrinsic motivation.” In other words, if we take the example of a sales team member, giving her an unexpected bonus for good work will keep her working hard. Giving her a salary raise in light of her good work will keep her working hard. But tying her bonuses and salary raises directly to her performance could undermine her own motivation.

So it’s not that giving employees money hurts their motivation. But the other circumstances surrounding how they earn it or deserve it do.

And it gets more complicated.

A performance-based reward system might not actually hurt an employee’s intrinsic motivation at all, depending on a few more pieces of context. When a boss and employee have a supportive relationship rather than one built on pressure, tangible rewards did increase motivation, in a study that compared a group in those circumstances to other employees who got neither rewards nor positive feedback (Gagne and Deci, 2005, citing Ryan, Mims, and Koestner, 1983). There’s even evidence that not telling an employee what the reward will be at all may help keep motivation high. Uncertainty and motivation are strange bedfellows.

Regardless, theorist and business decision makers alike continue to rule by the idea that tangible rewards, such as performance-based bonuses, are always beneficial to productivity. They’re not. They often end up decreasing the very intrinsic motivation that make good employees so valuable in the first place.

References

Deci, E. L., Koestner, R., & Ryan, R. M. (1999). A meta-analytic review of experiements examining the effectsof extrinsic rewards on intrinsic motivation. Psychological Bulletin, 125, 627–668.

Gagne, M. & Deci, E. L. (2005). Self determination theory and work motivation. Journal of Organizational Behavior 26: 331–362.

Ryan, R. M., Mims, V., & Koestner, R. (1983). Relation of reward contingency and interpersonal context to intrinsic motivation: a review and test using cognitive evaluation theory. Journal of Personality and Social Psychology, 45, 736–750.

Image by Alan O’Rourke, CC.

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3 thoughts on “When Bonuses Backfire

  1. Hi Jill,

    Great article again.

    There is also scientific evidence that money motivates people when they do simple tasks which require no cognitive effort.

    We found that as long as the task involved only mechanical skill, bonuses worked as would be expected: the higher the pay, the better the performance. But when we included a task that required even rudimentary cognitive skill, the outcome was the same as in the India study: the offer of a higher bonus led to poorer performance.

    http://scholarcommons.usf.edu/cgi/viewcontent.cgi?article=6083 &context=etd

    Hope this helps!

    Like

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