“As long as a task involves only mechanical skill, bonuses work as they would be expected: the higher the pay, the better the performance.”
“But once the task calls for ‘even rudimentary cognitive skill,’ a larger reward ‘led to poorer performance.’”
D. Ariely, U. Gneezy, G. Lowenstein & N. Mazar. Federal Reserve Bank of Boston Working Paper No. 05-11, July 2005; NY TIMES, 20 Nov. 08
Experiment repeated in India with larger incentives.
“In eight of the nine tasks examined across the three experiments, higher incentives led to worse performance.”
In an effort to deter parents from picking up their children from daycare late, a daycare center started charging parents each time they are late.
After the introduction of the fine we observed a steady increase in the # of parents coming late. The rate finally settled, at a level that was higher, and almost twice as large as the initial one.
‘A Fine is a Price,” Journal of Legal Studies 29 (January 2000).
Parents were showing up on time because they didn’t want to inconvenience the daycare workers. When a price was put on it, it became a transaction and people bought more of it. When they figured this out and removed the fine, lateness stayed up (people had habituated it).
Behavioural physics – when you reward something, sometimes you get less of the behaviour you want;
Sometimes when you punish it you get more of the behaviour you don’t want.
Redgate (software) – Eliminated sales commissions and sales increased. What happened:
- sales people became more collaborative
- managers spend less time policing sales people and who gets what, and more time actually trying to help customers
- “Our [previous] sales salary system felt like … a gigantic, complex and medieval spirograph centered on an assumption that wasn’t true.” Neil Davidson, Co-founder Red Gate software
The assumption that isn’t true:
Human beings are fundamentally inert and passive, and if we didn’t have a carrot dangled in front of us or a stick being wielded over us we would not do anything.
A lot of people believe this; No one ever believes this about themselves though.
This is an incorrect assumption.
Human nature is to be active & engaged.
You can’t find a 2 or 4 year old that isn’t active & engaged – it’s the way we are from the start.
If you don’t pay people enough, they won’t be motivated. Compensation research shows people are exquisitely attuned to fairness; if people are being paid unfairly; if they are not compensated adequately; if they feel they are getting a raw deal; if they are having a hard time supporting their family; this third drive doesn’t enter.
Once you pay them enough, this third drive matters almost incalculably.
The best use of money as a motivator, is to pay people enough to take the issue of money off the table.
Pay people enough that they’re not thinking about the $, they’re thinking about the work.
There are 3 Factors that lead to better performance (and personal satisfaction):
– our desire to be self directed; to direct our own lives
– management runs afoul of this; it is about control; the goal of management is compliance
– if you want engagement, self direction is better
Atlassian – Said to employees once a quarter take 1 day and do what ever you want. At the end of the day all we ask is you present to us (the company) in a fun meeting.
Zappos – 2 weeks of training, after which they offer an incentive: if you wish to leave right now we will give you $2000 (used as a filter; probably anyone who leaves for $2000 is probably going to cost you more than $2000 in the long run).
Then they say to their call center reps: go to your desk, arrange it however you want, when a call comes in here’s your job: solve the customers’ problem.
Do it your way, no script, no timing, no monitoring. If it takes you 1 minute great, if it takes an hour that’s fine too.
Zappos has one of the highest customer services ratings in America, higher than the 4 Seasons.
What is the job of a call center: to solve the customers’ problem.
Atlassian said these Fedex days are working so well we want to go to 20% time, where twenty percent of the time people can work on anything they want.
Also done at google, producing google news, gmail; just about all the good ideas here have bubbled up from 20% time. – Alec Proudfoot, google
Mastery – our urge to get better at things; we like to get better at things.
- for example, how people spend their time on the weekends (play musical instruments, ) b/c it’s fun & they get better at it…
- open source software (image you were to have told someone 20 years ago, for a business model, get a bunch of people around the world, doing highly skilled work, but they’re willing to do it for free, and volunteer their time, sometimes 20-30 hours/week; and then what they create, they give it away rather than sell it. – people would have thought you were insane, but we have linux powering 1 in 4 corporate servers in fortune 500 companies; Apache powering more than the majority of web servers; Wikipedia)
o these are people who have jobs, for pay doing technically sophisticated challenging work, and yet during their limited discretionary time they do equally if not more technically sophisticated work, not for their employer, but for someone else FOR FREE.
o WHY: Challenge & mastery, along with making a contribution
o The urge for mastery is so powerful people will take their limited discretionary time to do similar work they get paid for, but do it for free.
The Top motivator at work is making progress. What really motivated them at work, was getting a little bit better.
“The key to motivationn… doesn’t depend on elaborate incentive systems. (In fact, the people in our study rarely mentioned incentives).
Purpose – we want to be part of something larger than ourselves.
TOMS – shoes
- you buy a pair of shoes at TOMS, they give a pair of shoes away to someone in the developing world
- “We try to turn our customers into benefactors.”
The profit motive is not the only thing;
The Purpose Motive: more and more organizations want to have some type of transcendent purpose.
- it makes coming to work better
- this is the way to get better talent
- the profit motive must be connected to the purpose motive
Skype: “Be disruptive, but in the cause of making the world a better place”
Steve Jobs “Put a ding in the universe”
We are purpose maximizers, not only profit maximizers.
The science shows we care about mastery very very deeply; and we want to be self directed.
If we start treating people like people;
and not assuming that they’re simply horses,
if we get past our ideology of carrots and sticks,
and look at the science
we can build organizations and work lives that make us better off,
and also even make the world a little bit better.
People tend to go for what’s easy and seemed to work for them they believe has worked in the short run; it’s hard for they to break out of this.
- If people are offered incentives for this it will take longer to solve the problem because they are focused on the task.
- If the answer is straight ahead they can intensely focus on what’s in front of them and race towards it even faster
- It’s the enemy of creative problem solving because they are not picking up on the lateral signals
- In many ways If – Then incentives don’t work for creative problem solving precisely because they work so well for the non-creative tasks; they are so good at focusing our attention they are a detriment to more creative conceptual problems
- Crude incentives limit the breadth of your thinking so you’re not picking up on the lateral signals; they also foster an intense for of myopia; you are only fixated on the carrot in front of you; if there is a grizzly behind the carrot you won’t see it.
- Research also shows, in financial situations, if you offer very high stakes rewards for short term goals, some people will take the low road there.