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How effective is money to motivate employees?

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by Driven Organization

There are specific conditions when money is a good tool to motivate employees, but in general it is a really bad idea.

It works well when the employee must be focused on one repetitive task, such as cutting a rod into two pieces hundreds of time every day. This is, what is called, an algorithmic activity that follows a specific path to achieve the desired objective. It is repetitive, tiring, and requires constant focused effort. 

That's it. Nothing else.

Most jobs happen to be heuristic, this is, there is not a specific path to reach the desired objective, but one must "think" and decide on the best path, on what to do. For example, a customer care representative has to listen to his customer and try to solve his needs with the products the company offers. If he is incentivized to do it faster, he may not do a better job. For all these heuristic jobs, money is actually problematic, very problematic. These are some of the problems of using money (or external rewards) to motivate people:

  1. The other side of the coin of an external reward may feel like punishment.
  2. Money may cause people to lose interest in the work.
  3. Money as a control mechanism may result in feelings of lesser competence and satisfaction.
  4. External rewards ignore reasons.
  5. External rewards may hurt teamwork.
  6. External rewards may encourage risky behavior.
  7. External rewards may limit creativity.
  8. External rewards may diminish intrinsic motivation.
Today, we will talk about number one and two. These are excerpts from my book:

1. The other side of the coin of an external reward may feel like punishment.

Imagine you are an employee in a small company. Imagine you suffer from something that I have struggled throughout my life, being punctual. Your boss, a progressive businessman who has the best intentions for you, makes a deal with you. “If you come on time every day for the next month, I'll let you take one day free,” he tells you. It so happens that you want to go hiking with your friends to the mountains next month, and you need one free day to make it a long weekend. These are extremely good news for you!

Every day, you wake up one hour early, and arrive to the office with time to spare. You do so for many days, and the end of the month is approaching. On the 27th, disgrace takes place. Since the previous night was Thursday poker night, you went to bed late, you were tired, and you forgot to set up the alarm. You arrive to the office 45 minutes past the agreed time. Your boss is a considerate boss, but a deal is a deal, right? You cannot go on your planned getaway, which you were looking forward to doing.

How would you feel? You feel you tried hard, but somehow you did not get the reward. Even if, you believe your boss' decision not to let you go is fair, somewhere inside you feel a bit robbed. This is a simplistic example, but its purpose is only to help us understand the mechanism in action. You would feel you were punished, and that all the effort you invested went down to the drain. How come a positive reward turned into a negative feeling? Will you try again next month? 

2. Money may cause people to lose interest in the work.

An experiment was conducted by a young scientist named Edward Deci almost 40 years ago.i He used the Soma puzzle cubes. You may be already familiar with the Soma puzzle cube. It has 7 pieces, and each of these is composed of 3 or 4 fixed small cubes. The objective of the puzzle is to arrange the pieces so that they look like a given shape. One of the easiest challenges is to put the cube back together, for example. To compare the power of financial rewards, Deci divided the participants into two groups, the money group, and the unpaid group. The money group were offered $1 (about $7 today) for each completed puzzle.

When the experiment started, each participant came into the room and found 3 drawings of puzzles to complete, the Soma puzzle pieces, and some magazines. Deci sat in front of the participant to measure the time it took him to finish each puzzle. Between solving puzzle 2 and puzzle 3, Deci let the participants have some free time, telling them he needed some time to input data into a computer. They were free to do what they pleased, he told them. This was just an excuse for him to get out of the room and leave the volunteers alone. The participants didn't know this was the actual experiment. 

Once he left the room, Deci went to observe what they did. Did they continue playing with the puzzle, did they look at the magazines, or did they sit back and wandered into their thoughts? Those who had been offered money spent more time playing with the puzzle in their “free time,” which is somewhat expected. They probably wanted to get a head-start on their next challenge.

The following day, Deci told the paid group there was no more money to pay them. The structure of the day continued as before: Two puzzles, then some free time, then one more. The results were different: Those who had never been paid spent a bit more time than in the first day, about 5 minutes of their free time in average. However, those in the previously paid group spent less time than their counterparts, and much less time than what they had spent the previous day.

The money group folks had lost interest in the Soma puzzles. Somehow Deci had managed to make an activity that was interesting much less engaging for them. An interesting activity had become work, and to do it, they needed to be paid!

There are several other researches who have performed similar versions of the previous experiment with a variety of external reward variations such as avoidance of penalties, deadline stress, or competition stress.ii In all cases, external rewards seem to hamper long-term interest in the activities. Alfie Kohn, who has studied it in detail, summarized it perfectly, “If they have to bribe me to do it, it must be something I wouldn't want to do.”

Tags: Salary, motivation, leadership
Published on 16 Nov. 2012

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