Why Incentives are a Double Edged Sword

Why Incentives Are a Double Edged Sword

When business is growing stagnant, competitors are pulling ahead, and the future looks dire, things need to change. And most people immediately respond with incentives: harsh punishments and appealing rewards that will keep employees chasing after the right goals. Often, this really is the right way to respond, but it’s not always that simple.


In fact, sometimes incentives can actually make things worse.

When Incentives Trample Innovation

Dan Pink has popularized the idea that incentives hinder creativity with his book: Drive – The Surprising Truth About What Motivates Us. But Dan Pink is a former lawyer who now writes books about business, despite spending most of his career path in politics. According to the scientists who actually study this stuff, things are a bit more complex than that.

Here’s where Dan Pink has it right: incentives are never a problem when it comes to traditional productivity. If you want people to perform repetitive, simple tasks faster and more efficiently, incentives are the way to do it every time.

But when it comes to innovation and complex problem solving, incentives can be unpredictable. Some experiments suggest that they help people solve complex problems, while others suggest that they actually make it more difficult.

One experiment, conducted by Robert Eisenberger, draws attention to one of the reasons why. In the experiment, kids were exposed to one of four conditions.

  1. They were asked to rearrange letters to form one word, and they weren’t paid for it.
  2. They were asked to rearrange letters to form one word, and they were paid $.01 for it.
  3. They were asked to rearrange letters to form at least six words, and they weren’t paid for it.
  4. They were asked to rearrange letters to form at least six words, and they were paid $.01 per word.

After this exercise, the kids were asked to draw pictures, which were then rated on creativity by judges. It wasn’t as simple as payment making things better or worse.

Instead, the children in the second group did worst of all. The kids in the first and third groups did average. And the kids in the fourth group did better than anybody else.

So, in one case, payment was making things worse, and in another, it was making it better? What was going on here?

  1. If the children felt like they were being paid just to complete a task, incentives made them less innovative.
  2. If the children felt like they were being paid to be innovative, incentives made them more innovative

It’s Not About the Incentive, it’s About Why it’s There

The lesson here is one of clarity.

Incentives are not a cure-all that will solve any problem. It needs to be very clear why they are there in the first place. Simply giving a bonus to an employee isn’t going to send a meaningful message to your workforce.

By default, people assume that incentives are about productivity. If your goal is productivity, that’s fine.

But if you’re dealing with problems that can’t be solved with efficiency, if ideas are the only way out of your predicament, you need to be very careful with incentives. You must make it very explicit that the incentives are for innovation, not productivity. It’s not about how much time they spend in the office or how quickly they get their work done: it’s about thinking outside the box.

These are two very different ways of thinking about incentives. Tread lightly.

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Original Source: http://www.localsurgemedia.net/austin-community-and-business/why-incentives-are-a-double-edged-sword

August 6, 2013

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