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I am going to give you tasks that require your attention, memory, concentration and creativity. For example, I am going to give you a puzzle to assemble while throwing tennis balls at a target.

Now, I am going to run three different rounds in a vacuum. In other words, pretend each round is given as if you have no previous knowledge of the exercise. In round 1, I will give you $200 if you perform well. In round 2, I will give you $2,000 if you perform well. In round 3, I will give you $20,000 if you perform well.

In which round will you perform the best?

Most people would say round 3. After all, higher rewards usually drive better results, right? That is the typical line of thinking and it makes perfect sense. The financial gurus tell us that we need to offer high bonuses to drive desired results.

This all makes this Wired article so timely. More and more studies are confirming that bonuses promote activity, not quality.

What Does That Mean? Bonuses Increase Activity, Not Quality?

Take your typical 9-5 job as an example. Do you neglect your work outright? My personal observations are that most people will not neglect their work. They may not perform at 100%, but they perform well enough. If I came into their office and said “I will give you $100,000 if you produce better results,” I could guarantee a few things:

1. They will act a lot busier,
2. they will be at Facebook.com and ESPN.com a lot less,
3. and they will work more hours.

But, this is an increase in activity, not quality. As I said earlier, most people already perform at sufficient levels. American productivity has increased year after year for good reason. So all of that “effort” put forth is just an increase in working activities. They may work 20% more and see a 2% gain in results.

This is all very dependent on the type of task, though. If you are given a mechanical task such as clapping your hands as fast as possible, bonuses can increase performance. However, if the task is cognitive in nature, such as doing mathematical problems, a bigger bonus can actually lead to worse results.

So, what kinds of studies have they done to prove this?

Experiments on Bonuses

Below are a few separate experiments that were conducted:

Experiment #1

Same as in the opening paragraph, subjects of the experiment were given tasks that required them to assemble puzzles and play memory games while throwing tennis balls at a target. Results?

We promised about a third of them one day’s pay if they performed well. Another third were promised two weeks’ pay. The last third could earn a full five months’ pay. (Before you ask where you can participate in our experiments, I should tell you that we ran this study in India, where the cost of living is relatively low.)

What happened? The low-and medium-bonus groups performed the same. The big-bonus group performed worst of all.

Experiment #2

We replicated these results at Massachusetts Institute of Technology, where under graduate students were offered the chance to earn either $600 or $60 by performing one four-minute task. Some participants were asked to use cognitive skills (adding numbers); others performed only a mechanical task (tapping a key as fast as possible). On the latter, higher bonuses worked. But when tasks included rudimentary cognitive skills, results mirrored the Indian study. Dangling a very big carrot led to poorer performance.

Just thinking out loud here, but I imagine the bigger carrot leading to poorer performance has a lot to do with stress.

Experiment #3

We later looked at another motivator: public scrutiny. We asked participants in a University of Chicago study to solve anagrams, sometimes privately in a cubicle and sometimes in front of the others. We found that the subjects wanted to perform better when they worked in front of others and performed much worse alone. Like money, social pressure motivates people, especially when the tasks require only effort and not skill or thinking. But at some point, too much of it overwhelms the motivating influence.

This makes sense, too. You’re sitting at the chalkboard and the professor asks you to draw as many X’s as you can on the chalkboard. Then he has you do it again in front of a classroom full of people. You will probably draw more X’s in front of a group of people because it serves as motivation to perform better. However, if it has to do with solving very complex calculus problems, you can only speed up your thinking so much.

Conclusions

So, despite what seems logical, there is a lot of research being done to show that bonuses do not drive results! If you are in finance, block this article from all of your work computers and try to get the story buried – I don’t want to get rid of your bonus!

When you step back and think about it, though, these studies do make sense. Of course money can motivate people to perform better on a mechanical function. But once we get to cognitive abilities, you can only drive yourself so far. You can only be so creative. You can only utilize your brain to a certain extent.

So why are bonuses thrown out there so much as an end all be all to get better results?

What Do You Think?

If you haven’t seen these kinds of studies circulating, what do you think? Do you think the studies may be overlooking an important variable? Or do you think they are stressing the obvious?

If these studies were to gain more popularity, could you foresee a decrease in bonuses?