How Bonuses Destroy Motivation
A few months ago, a friend from Connecticut decided to move to New York City. This man had a fabulous collection of antiques, such as exquisite old books and handblown Murano glasses from generations ago. I knew how attached he was to them, and how anxious he would be handing them over to a moving company, so the last time I visited, I offered to carry the most fragile items with me when I returned to the city. Two weeks later I got a thank-you letter. Enclosed was a $50 bill.
For years, Switzerland has been considering where to store its radioactive waste. The authorities considered a few different locations for the underground repository, including the village of Wolfenschiessen in the center of the country. Economist Bruno Frey and his fellow researchers at the University of Zurich traveled there and recorded people’s opinions at a community meeting. Surprisingly, 50.8 percent were in favor of the proposal. Their positive response can be attributed to several factors: national pride, common decency, social obligation, the prospect of new jobs, and so on. The team carried out the survey a second time, but this time they mentioned a hypothetical reward of $5,000 for each townsperson, paid for by Swiss taxpayers, if they were to accept the proposal. What happened? Results plummeted: Only 24.6 percent were willing to endorse the proposal.
Another example is children’s day care centers. Day care workers face the same issue the world over: parents collecting their children after closing time. The staff has no choice but to wait. They can hardly put the last remaining children in taxis or leave them on the curb. To discourage parental tardiness, many nurseries introduced fees for lateness. Ironically, studies show that tardiness actually increased. Of course, they could have instituted a draconian penalty of, say, $500 for each hour—as they could have offered $1 million to each citizen of the small Swiss village. But that’s beside the point. The point is: Small—surprisingly small—monetary incentives crowd out other types of incentives.
The three stories illustrate one thing: Money does not always motivate. Indeed, in many cases, it does just the opposite. When my friend slipped me that fifty, he undermined my good deed—and also tainted our friendship. The offer of compensation for the nuclear repository was perceived as a bribe and cheapened the community and patriotic spirit. The nursery’s late fees transformed its relationship with parents from interpersonal to monetary, and essentially legitimized their lateness.
Science has a name for this phenomenon: motivation crowding. When people do something for well-meaning, nonmonetary reasons—out of the goodness of their hearts, so to speak—payments throw a wrench into the works. Financial reward erodes any other motivations.
Suppose you run a nonprofit organization. Logically, the wages you pay are quite modest. Nevertheless, your employees are highly motivated because they believe they are making a difference. If you suddenly introduce a bonus system—let’s say a small salary increase for every donation secured—motivation crowding will commence. Your team will begin to snub tasks that bring no extra reward. Creativity, company reputation, knowledge transfer—none of this will matter anymore. Soon, all efforts will zoom in on attracting donations.
So who is safe from motivation crowding? This tip should help: Do you know any private bankers, insurance agents, or financial auditors who do their jobs out of passion or who believe in a higher mission? I don’t. Financial incentives and performance bonuses work well in industries with generally uninspiring jobs—industries where employees aren’t proud of the products or the companies and do the work simply because they get a paycheck. On the other hand, if you create a start-up, you would be wise to enlist employee enthusiasm to promote the company’s endeavor rather than try to entice employees with juicy bonuses, which you couldn’t pay anyway.
One final tip for those of you who have children: Experience shows that young people are not for sale. If you want your kids to do their homework, practice musical instruments, or even mow the lawn once in a while, do not reach for your wallet. Instead, give them a fixed amount of pocket money each week. Otherwise, they will exploit the system and soon refuse to go to bed without recompense.