Working people and experts say incentives don’t work

By Patricia Bouweraerts

Engineers take things apart and put things back together and know exactly how systems work — so why not an incentive system?

Gregory Norton is an engineer who commented on a Quora.com question about whether monetary incentives improve performance at commission-based jobs such as in sales or finance.

“The incentive is designed to get someone to take the job, not to perform well at it,” he wrote.

circus-performers-hp

Svetlana Ivtchenko and Gennadiy Fedounov, gymnasts at Circus Circus Reno perform on March 6, 2016. Photo by P. Bouweraerts

Performance-based pay, incentives and rewards logically seem like a good idea, but employees and experts are saying that these systems do not work at work.

Incentives are widely used and practiced in many ways from behavior charts in schools across the U.S., to loyalty cards at pharmacies and grocery stores, to “Employee of the Month” in many workplaces. And yet, the research is there that people cannot be effectively “incentivized” to be a better student or a better worker.

Many studies have shown that people learn and work best when the task is interesting, when they work with others who are interested, and they have some say about how the work is done. Employees invest themselves in workplaces where they are respected or recognized for their specific contributions, and when their work has a larger meaning or purpose.

Incentives or rewards can have negative effects, one of which may be a decline in work quality.

“What I observed almost a decade ago, in ‘Punished by Rewards,’ is still true as far as I can tell: not a single controlled study has shown a long-term improvement in the quality of work as a result of any reward system,” wrote Alfie Kohn, author, social scientist and lecturer on education and psychology.

Greg McVerry, researcher and teacher educator at Southern Connecticut State University agrees. He wrote on his blog on Medium.com that performance-based pay for educators doesn’t help them improve their teaching methods.

“In 1999 John Hattie published a meta-analysis on learning,” he wrote. “Feedback had one of the largest effects on improving learning. Teacher improvement is no different. Hattie also identified what type of feedback improves learning. We can extrapolate these findings to improving teachers. Feedback that had the lowest effect is the type of feedback the (National Council on Teaching Quality) NCTQ wants evaluations built upon: punishments and rewards.”

Incentives and ethics

Wells Fargo is under investigation in 2016 by the U.S. Senate Banking Committee, and its CEO John Stumph apologized in September for the more than two million phony accounts that the bank is accused of creating. The problem was reported to have been the result of incentives provided to employees when meeting account quotas.

Responding to a question on Quora.com about what Wells Fargo could have done to prevent bankers from creating the fake accounts, Demetrius Hicks responded that he would have never set up a phony account, but he did find the incentives too much to refuse setting up purely temporary accounts for friends.

“What I’ve heard, and admittedly done, is asking people you know to set up an account with Wells Fargo, placing $25 in the account (or whatever the minimum opening balance is) and having them take it out at a later day,” he wrote.

He said that the primary reason was incentives for the pay bonuses.

“We, every employee at the stores, make a quarterly bonus provided we meet certain benchmarks set for us.” He continued. “If I remember correctly, the tier level goes Bronze, Silver, and Gold — the higher you go, the more bonus you receive. Maybe if a new system was created to provide incentive, but remove the tier levels, we (or formerly I) wouldn’t feel the need to create a certain amount of ‘bogus’ accounts.”

Starting in childhood

A few weeks ago Workplace Story posted an article about what working people have said online about sources of inspiration and motivation in their work that goes deeper than perks provided to them.

In perk-happy Silicon Valley, rewards include high-tech napping chairs, free candy stores, and even personal house-cleaning services provided twice a month, complementary.

After the story was published, in October there was an unrelated radio broadcast on KUNR 88.7 Reno, entitled “The truth about behavior charts” by the licensed marriage and family therapist Cheryl Erwin on her program, Parenting with Cheryl Erwin.

“Research tells us that children do respond to internal rewards that fit their objectives,” she said. “They enjoy succeeding, achieving their own goals or being encouraged for what they contribute. But incentives are different. It seems hard to believe, but for many kids, they work for a while and then stop when the brain no longer responds to the reward. Incentives are actually discouraging.”

Could this be true? Could it be true for adults, as well? Therapist Erwin was contacted by mail with these questions, and she responded.

“I’m glad you were interested in the commentary on incentives; it’s a fascinating topic and seems counter-intuitive to most people who hear the research for the first time,” she wrote. “But you’re absolutely correct: the best motivation is a sense of inner satisfaction, as well as the encouragement that comes from simply being noticed and appreciated. No rewards, stickers, or money necessary.”

She also referred to the work of two notable experts and authors, Kohn and Daniel Pink.

Some jobs have few traditional rewards, but can offer satisfaction

“During the twenty-five years I’ve been housecleaning, I’ve worked with, and trained lots of people who were once white-collar employees,” wrote Angela Brown on the HouseCleaningGuru.com.

She wrote that white-collar workers may leave because they need more flexible hours, or didn’t get along with their boss, or got tired of office politics, or the workload was too heavy.

“Sure, there was good pay at the white-collar job, but no satisfaction in the work,” Brown wrote.

Daniel Pink, J.D. is a best-selling author who writes about the changing workplace. He has served in government and political positions, and hosted “Crowd Control,” a TV series about topics in psychology produced by the National Geographic Channel. He has written a book entitled “Drive,” and his highly-viewed 2009 TED Talks presentation on the science of human drive is called “The puzzle of motivation.”

Incentives dull thinking and block creativity, according to research that has been repeated during the course of 40 years, he said in his TED Talks presentation. These findings are most often ignored, he added.

Rewards focus attention more narrowly, and they work well for tasks that are not complex. But for even slightly complex tasks, the solution is often on the periphery.

“Let’s go across the pond to the London School of Economics, LSE, London School of Economics, alma mater of eleven Nobel Laureates in economics,” he said. “Training ground for great economic thinkers like George Soros, and Friedrich Hayek, and Mick Jagger. Last month, just last month, economists at LSE looked at 51 studies of pay-for-performance plans inside of companies. Here’s what economists there said: ‘We find that financial incentives can result in a negative impact on overall performance.’

Pink distinguished rewards as extrinsic motivation and meaningful work as intrinsic motivation.

“The good news is that the scientists who’ve been studying motivation have given us this new approach,” he said. “It’s built much more around intrinsic motivation. Around the desire to do things because they matter, because we like it, they’re interesting, or part of something important. And to my mind, that new operating system for our businesses revolves around three elements: autonomy, mastery and purpose. Autonomy: the urge to direct our own lives. Mastery: the desire to get better and better at something that matters. Purpose: the yearning to do what we do in the service of something larger than ourselves. These are the building blocks of an entirely new operating system for our businesses.”

Compliance is something different from being fully engaged in one’s work, according to Pink.

“What it means is paying people adequately and fairly, absolutely — getting the issue of money off the table, and then giving people lots of autonomy,” he said.

A software company in Australia, Atlassian, has had breakthroughs occur when they directed their engineers to work on a personally-directed project for one 24-hour period a few times a year. This has been replicated at Google, where engineers are told to spend one-fifth of their workday working on a project of their choosing.

“They have autonomy over their time, their task, their team, their technique,” he added. “Radical amounts of autonomy. And at Google, as many of you know, about half of the new products in a typical year are birthed during that 20 percent time: things like Gmail, Orkut, Google News.”

Commission is a reward

An occupation typically thought of in terms of rewards or commissions is sales.

A question posed on Quora.com about the most stressful part of selling cars drew an answer from Kritarth Pattnaik who has been employed at an automobile dealership for more than 10 years.

“Appraisals and promotions are dependent on multiple factors, non-related to your performance,” he wrote. “There are no fixed paydays. Incentives committed and paid are not always the same.”

In another question about what it’s like to work for commission with no base salary, the answers include one from George Sawyer, who has worked in direct sales, channel sales, and sales management for business-to-business (B2B) sales.

“It’s really really hard,” he writes. “And, if it is a startup, and you are making a ton of money (ie $500k plus) when they get closer to going public, they will renegotiate the deal to reduce your compensation.”

Maxwell Bogner, another poster agrees that commission only without a base salary is stressful.

“In my experience it puts an immense amount of pressure on the salesperson which usually comes through in their performance,” he wrote.

Ryan Peterson, sales executive, writes on his blog that there is fulfillment beyond hefty commissions.

“Sure, making money is a wonderful thing, but if money is your primary reason for picking up the phone, I think it’s highly unlikely you’ll be satisfied by a sales career,” he wrote. “If money is the only score, well, you can never have enough money to make you happy — that is a cup you can never fill. …What has no boundaries is the fulfillment you get from having purpose and waking up (most) days excited to help others solve problems.”

Sami Honkonen is the founder and CEO of Tomorrow Labs, a digital product studio based in Finland, and the host of Boss Level podcast. He writes on his blog on Medium.com that incentives in sales lead to more closed deals but not the delivery of the product, which is more important in creating future closed deals.

“Bonuses create an incentive to close deals that might not even have the most rudimentary preconditions for success,” he wrote. “Bonuses create an incentive to focus on closing the next deal instead of following up on the delivery of the previous one. Bonuses create a reason for sales to blame delivery and delivery to blame sales.”

They want to be paid, not ‘incentivized’; encouraged, not praised; offered respect, not reinforcements.

Alfie Kohn, social scientist, author and college lecturer

Doing to people instead of working with them

In a 2013 interview with a professor at Wharton School, The University of Pennsylvania, Pink references the work of social psychologist Edward Deci that showed motivation is not something done to people, but the reasons that people come up with themselves to do something.

Kohn agrees. He said during an appearance on the Oprah television show that instead of using rewards, working with people takes more time.

“Rewards work — they buy one thing and only one thing which is temporary compliance, but in the long run they not only don’t help, they make things worse,” he said. “Because, and this is one of the findings in psychology that has been shown over and over again, the more you reward people for doing something, the more they tend to lose interest in whatever they have to do to get the reward. Not only do you not develop a commitment to the behavior so you go back to doing it the way you did things before when the reward is no longer around, but now you’re less interested in it.”

Rewards are ways of controlling people — kids and adults — and people don’t like to be manipulated, Kohn said during the Oprah program.

Studies on incentives have been around for many years. Kohn was invited in 2002 to contribute an essay for a management anthology. But the anthology’s author decided not to publish Kohn’s essay because he was a fan of incentive systems and Kohn debunked incentives in his essay.

“Numerous studies have shown that when people are asked what is most important to them about work, the top answers are factors such as interesting work to do, or good people to do it with, or a chance to have some say about what one does,” he wrote. “These are not rewards. They are not offered conditionally, on the basis of satisfying someone who has more power than you do.”

Working people would like to be fairly paid, not incentivized, and they need genuine respect, not reinforcements, he added.

In the comments section of an article that Kohn published in the Harvard Business Review about the ineffectiveness of reward systems, Alfredo Madrigal wrote that in his experience with incentive systems in the manufacturing sector, rewards do increase productivity. But he added a caution.

“I agree in that incentive systems focus on a conduct change with a prize,” he wrote. “And this is a unilateral push, people are way more complex than that. And though a majority will be satisfied with the incentive, there are others who either rather not even bother on attempting to strive for an incentive bonus, others will constantly feel as if they are not being paid enough, some will become aggressive, others will become offended.”

Fulfillment is not “incentivized”

In the view of Simon Sinek, ethnographer, leadership expert and strategic communications professor at Columbia University, a company will perform better if workers at all levels feel safe and that they belong. It will have more happy customers if employees feel safe and that they belong, he said during a talk on leadership, “Why Leaders Eat Last.”

During a July book launch at Baruch College, he talked about how people, when they feel valued, safe and confident will deliver.

“I imagine a world in which the vast majority of people wake up every single morning inspired to go to work, feel safe when they’re there and return home at the end of the day fulfilled by the work that they do,” he said. “And I believe this thing called fulfillment, the ability to say that ‘I love my work,’ that ‘I love what I do’ — I believe that it is a basic human right and not a privilege.”

If most employees were fulfilled, it would also be good for businesses’ bottom lines.

“The irony is it’s actually good for them — that’s the big joke,” he said. “The more engaged (we are), we offer more discretionary effort, we offer our big ideas simply because they said ‘come here and enjoy yourself and feel safe and have a good time and let us help you grow.’”

Companies that put people before money and numbers, such as Costco Wholesale, have done better than their competitors year after year, he added.

So, effectiveness and productivity can occur with no employee incentives or rewards — simply that an employer has your back, work is interesting, and you are allowed to grow and be fulfilled.

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