Most people would assume that offering a financial incentive to a team member to get them to work harder would be good business practice. After all, it this is a strategy that has been used for a century or more in business.
There is a lot of evidence in behavioral psychology to show that it worked – past tense.
It worked well until it didn’t and it hasn’t worked well for “most” people for a very long time.
The Surprising Truth About What Really Motivates Us
In Dan Pink’s book, Drive – The Surprising Truth About What Really Motivates Us, there is a study of Fortune 500 companies that used external (extrinsic) financial rewards as an incentive to increase performance.
They were studied to observe exactly what happened over time and the results were nothing short of unexpected – I was blown away.
After three short months and a small spike in productivity, performance dropped significantly across all businesses being researched. And I’m talking significantly – by over 80% in many cases.
We’ve gotta ask the question, why?
Discoveries from behavioral science prove when you use an extrinsic reward in the form of a financial incentive, it creates fairly predictable behaviours. Predictably bad not predictably good.
The effects of extrinsic financial incentives
When this type of incentive is used it narrows people’s focus, as “money focus” can be emotionally all-consuming and often very stressful.
They become more focused on the reward itself than they actually do on the activity or the outcome or the problem it is that they’re trying to solve.
And as a result, they lose the ability to be creative which can bottleneck innovation and growth.
It also dramatically increases the probability of unethical behaviour and we’ve all seen that in other businesses, and you may have seen this in your own as well.
When you put financial incentives in place, often times, people’s narrowed focus will actually introduce the desire for short term gratification which increases the probability they will deceive, omit, cheat, exaggerate or minimize in order to achieve the reward.
You’ve only got to look at the top world banks, where they’ll do whatever they can to hit their quarterly numbers so the execs can get their performance bonuses to know there is some truth here worthy of exploration.
The 2008 subprime mortgage meltdown is the greatest case to date of financial incentives making smart people do very stupid shit.
I’ve seen this in businesses in the past that I’ve been a customer of and I’m sure I’m probably going to see it again. And I’m sure you’ve seen it before yourself.
Maybe you’ve even fallen victim when you’ve considered doing things that perhaps you shouldn’t, that may be seen as unethical, just so that you could get that sale.
It can be easy to justify if you’re telling yourself you have a family to feed.
Financial rewards also create an increase in risk taking.
That’s not what you want to from team members if they’re conducting themselves in activities where the increased risk, inherently increases the liability your business.
The degree of risk is determined by the activities that they’re involved in.
If they’re in manual labor or using dangerous machinery, there’s the potential for harm, physical injuries and potential fatalities as well.
The Collaborative Disadvantage
It can create Decreased Cooperation because people start becoming more competitive with each other.
And you might be thinking, “Well, isn’t a competitive environment good?”
Yes, it is, but not if it prevents people from collaborating together.
The highest form of human expression in business, in my opinion, is collaboration, where we work together to achieve the growth.
Collaboration drives evolution and innovation in businesses and in nature.
Does this mean we stop using external rewards?
For routine tasks, which aren’t very interesting and don’t require creative thinking, external rewards can be very helpful. Rewards can provide a small motivational booster shot without harmful side-effects short term.
But they still can have the harmful long-term ramifications if they are repeated and the expectation is created. Because if you repeat it on a consistent basis then it becomes expected, and that can breed entitlement which creates resentment if it stops.
Then before you know it you’ve got all of the ramifications of external or extrinsic motivation and the decrease in performance that it produces.
So doing it every now and then, when it’s unexpected, has been proven to work effectively, as long as it isn’t done on a very regular basis – the value is in the surprise.
External rewards are like coffee
They’ll give you a short boost with long-term ramifications. They can stifle the long-term motivation and severely impact creativity.
Extrinsic rewards can actually crush the ability for the individual to become creative.
The Death of Creativity
Research into the artistic community discovered than when an artist is paid to produce artwork for a client (commissioned work), they actually didn’t enjoy the process as much and often were far slower at producing the commissioned work than if they were painting something that was inspired.
The commissioned jobs, in many cases, took two to seven times longer than the artwork they produced themselves.
Because it didn’t allow them to express their freedom of creativity. They didn’t have autonomy in their expression.
They were working from a brief that was given to them from a client and as a result it stifled their autonomy and creativity which impacted their motivation.
There are many artists that won’t even do commissioned work and the reason they won’t do commissioned work is because of that exact explanation. It crushes their creativity.
Extrinsic Rewards Can Crowd Out Good Behavior.
It can encourage cheating, shortcuts, and unethical behavior as we’ve already discussed.
And it can also foster short-term thinking where people become more focused on the short term than they do on the long term.
Now, I’m not suggesting you shouldn’t be motivated by money, that is your call. But I am suggesting you should be motivated by value. Because if you’re motivated by relationships and value, then money comes consequently without all the other shit.
I’m not saying financial motivation is bad, I am just saying you need to be wary of people whose number one value is money.
Because they will sacrifice all other values in the pursuit of money. As values are prioritized based on hierarchy, you would be an idiot to expect someone who’s number one value is money, not to exaggerate or tell a few white lies or more in order to get a deal.
If money is more important than honesty to an individual that is what you get.
It’s like saying to a tiger, “Why did you attack me?”
“Because I’m a tiger. That’s what I do, I eat meat bags like you.”
“But you looked so calm, so I got out of the car, you looked so cuddly and pleasant.”
“Dude, I’m a f’ing tiger. You’re prey, I’m a predator, I eat you. Please don’t expect something from me that you’re not going to get, it’s obvious, I’ve got stripes. There’s warnings on the sign.”
Be aware of those warning signs.
As a business owner, performance for ourselves and our team is paramount to our growth and long-term success.
We need to find new ways to motivate that are safe, long lasting, support long-term success and relationships.
Intrinsic motivation is the KEY to creating a high-performance environment and I will be discussing that in future posts.
The research concludes that when people’s basic needs are met and they are given a level of autonomy in their role, the opportunity to learn and they are aligned with a purpose greater than just making money (for the business) something magical happens.
They become highly motivated.
More to come on the topic of creating long lasting motivation in future posts.
What do you think about money as a motivator? Let me know your thoughts and questions below!
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Kerwin Rae
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Latest posts by Kerwin Rae (see all)
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100% agree Kerwin and well said 🙂
We have goals for our teams that are non-money orientated and when they have smashed a monthly KPI a team reward is given (e.g. one month we did so well they got to choose between a ping pong table or a pool table) They now have 5 mins off when they need time out to play ping pong when they like.
We also have Friday arvo ping pong or basketball tournaments with a beer (within reason for not more than about 40 mins at the end of the day!!) Its promoted excellent social bonding in the team and money isnt an issue as they all want to stay working here and working in their teams that they love 🙂
We too have a ping pong table and have regular tournaments! Sounds like you have got the mix right Nicci.. Treat people well, provide a fun and engaging environment and they will go well out of their way to serve. Nice work 🙂
Well structured text which explains what and why is going on. And gives the ideas what to do to change things.
All of the problems I experienced with my first business. That was one expensive lesson.