As Americans we live in a wonderful world of high-stress work environments, tight deadlines and an inundation of social networking that keeps us relentlessly connected. Our bosses demand our time, our energy and our creative inspiration.
In return we expect our employers to provide us with a few things. A reliable place of work, maybe a bit of respect and a desk by a window are all nice, but the most important thing to many of us is how much we’re getting paid to do whatever it is they decide they need from us.
Companies know this, and it’s probably why it’s so common in the business world to pay workers based on performance. It’s not unusual to hear about giant bonuses being given out at places like American International Group Inc.
Unfortunately for the supervisors writing our checks, an enormous amount of research indicates that cash incentives not only don’t lead to higher productivity, they in fact discourage it.
A study by the Federal Reserve Bank of Boston, disconcertingly called “Large Stakes and Big Mistakes,” looked into how monetary incentives affected how productive people were when they worked on performance-contingent tasks. They conducted experiments at the Massachusetts Institute of Technology, the University of Chicago and Saraswathi Narayanan College in India to get a wide range of participants.
Participants were offered payments for the tasks they performed on varying scales from small to large, and their typical pay was factored into the incentives. For tasks that only required mechanical skill, the research indicated what we’d expect: The higher the payment, the better and faster the results were.
Unfortunately, our work days so infrequently contain tasks that require only mechanical skills. As soon as participants were given assignments that required “even rudimentary cognitive skill,” being offered a reward led to poorer performance.
Yes, that’s right: Giving people money made them perform worse than if they didn’t have a monetary reward at all. Eight out of nine tasks they researched across a variety of participants led to the same conclusions. Except in very specific instances, higher incentives actually cause people to perform worse.
This seems like one of those laughable studies that must have manipulated a variable or had too many fuzzy feelings to do the whole science thing right, but the results have actually been repeated again and again over decades.
Across the Atlantic, the London School of Economics found the same results when they conducted a similar study. Dr. Bernd Irlenbusch’s research again established that performance-based pay led to sketchy outcomes, and it showed “that financial incentives…can result in a negative impact on overall performance.”
Despite the surmounting evidence that our current system is, well, incredibly stupid, we still seem to keep doing the same things.
Dan Pink gives a compelling TED Talk that describes how after 40 years of studies, there’s still a disconnect between “what science knows and what business does.” He describes a business world where higher-up execs nod their heads and seem to agree that these studies are groundbreaking and could mean something huge for the future.
When it comes down to it, though, they always have a reason it wouldn’t work for their company or just isn’t the right time.
This comes off as both highly arrogant and altogether unsurprising. After so many decades of everyone doing the same thing the same way, people are of course resistant to change.
The problem is that this isn’t a shiny new theory; it’s a replicable body of research that shouts that companies are shooting themselves in the foot for no other reason than tradition. These executives aren’t shirking the next big trend; they’re dismissing scientific evidence that could make their companies more productive. As an uppity college student, I find that appalling.