Modern business has proven-Bonuses inneffective

Source: http://www.alfiekohn.org/managing/fbrftb.htm (entire article)

Business is a hobby of mine and I've read so many studies that contradict the bonus for performance plan. Especially in environments where creative thinking is needed(fighting).

Here is a good explanation I found. I really think this adds weight to the idea that the UFC uses bonuses more to control its fighters than to give them incentive.


For Best Results, Forget the Bonus

By Alfie Kohn

"Do this and you'll get that." These six words sum up the most popular way in which American business strives to improve performance in the workplace.

And it is very popular. At least three of four American corporations rely on some sort of incentive program. Piecework pay for factory workers, stock options for top executives, banquets and plaques for Employees of the Month, commissions for salespeople -- the variations go on and on. The average company now resembles a television game show: "Tell our employees about the fabulous prizes we have for them if productivity improves!"

Most of us, accustomed to similar tactics at home and school, take for granted that incentives in the workplace are successful. After all, such incentives are basically rewards, and rewards work, don't they?

The answer, surprisingly, is mostly no. While rewards are effective at producing temporary compliance, they are strikingly ineffective at producing lasting changes in attitudes or behavior. The news gets worse. About two dozen studies from the field of social psychology conclusively show that people who expect to receive a reward do not perform as well as those who expect nothing. This result, which holds for all sorts of rewards, people and tasks, is most dramatic when creativity is involved.

Are rewards as ineffective inside the workplace as they are outside it? Apparently so. Despite decades of widespread reliance on pay-for-performance schemes, I know of no controlled study demonstrating that rewards improve the quality of workplace performance on a long-term basis.

At a Midwestern manufacturing company, for example, an incentive system that had been in place for years was removed at the request of the welders' union. Now, if a financial incentive motivates people, its absence should drive down production. And that is exactly what happened -- at first. But after the initial slump, the welders' production rose and eventually reached a level as high as or higher than before.

Of course, these studies -- no matter how numerous -- are hard for most of us to accept. After all, "Do this and you'll get that" is part of the fabric of American life. From gold stars to candy bars, we have faith in rewards' redemptive power.

A closer look, though explains why incentive plans not only do not succeed, but cannot succeed:

Rewards punish. Even executives who understand that coercion and threats destroy motivation may fail to recognize that the same is true of rewards. Punishments and rewards are not really opposites. They are two sides of the same coin, and the coin does not buy very much.

Like punishments, rewards are manipulative. "Do this and you'll get that" is not very different from "Do this or here's what will happen to you." The reward itself -- a bonus, say -- may be desired, but it is contingent on satisfying terms someone has imposed. Sooner or later, this sense of being controlled feels punitive.

Rewarding people is similar to punishment for another reason. When people do not get the rewards they were hoping for, they feel punished. And the more desirable the reward, the more demoralizing it is to miss out.

Rewards rupture relations. Research and experience show that excellence depends on teamwork, both because of the exchange of ideas it fosters and the climate of social support it creates. But the scramble for rewards -- particularly when they are made scarce, creating competition -- destroys this valuable cooperation.

Relationships between supervisors and workers, too, can collapse under the weight of incentives. If a supervisor wields sanctions, of course, employees will be about as glad to see that person coming as they would be to glimpse a police car in their rear-view mirror. But even if the supervisor is a rewarder, the effect is essentially the same. Incentive-driven employees will not ask for help when they need it. Instead, they will conceal problems to appear infinitely competent, or they will resort to flattery.

Rewards ignore reasons. To solve productivity problems, executives must understand the causes. Are workers unable to collaborate effectively? Is long-term growth being sacrificed for short-term gain? Each situation calls for a different response. But incentive plans offer a one-size-fits-all answer that ignores what lies behind the questions.

Rewards deter risk-taking. When people are offered incentives they are less inclined to take risks, explore possibilities, play hunches or attend to anything whose relevance to the problem at hand is not immediately evident. In a word, the No. 1 casualty of rewards is creativity. The proof: a dozen psychological studies showing that the more people are led to think about rewards, the more they prefer easy tasks. Why? Not because of laziness, but because incentives encourage concern about what one is going to get.

In short, "Do this and you'll get that" makes people focus on the "that," not the "this." Do rewards motivate people? Absolutely. They motivate people to get rewards.

Rewards undermine interest. Loving what you do is a more powerful motivator than money or any other goody. No surprise there. What is surprising is that goodies actually undermine personal motivation. The more an executive gets employees to think about what they will earn for doing their jobs well, the less interested they will be in what they are doing. Edward Deci, a University of Rochester psychologist, did pioneering studies on this effect in the early 1970's; his findings have been corroborated many times since then.

How does this happen? One explanation is that rewards are controlling. If people are led to think about getting a bonus, they start to feel their work is no longer freely chosen and directed by them. And to feel controlled is to lose interest. Another explanation is that the reward makes the work seem distasteful. "If they have to bribe me to do it," a person might figure, "it must be something I don't want to do."

Whatever the reason, rewards turn play into work and work into drudgery. Worse, when rewards corrode intrinsic motivation, workers have no other reason to put out an effort. This pattern, in turn, confirms supervisors' beliefs in the need for incentives. It is a self-fulfilling prophecy.

Small wonder, then, that a growing number of executives are scratching their heads over the failure of their reward programs. Typical is an August article in a leading human resources journal: "Why No One Likes Your Incentive Plan."

Unfortunately, most executives believe the problem lies in the particulars of their program, and so they devise new variations on the same behaviorist theme. Countless consultants live handsomely from devising yet more ways to compute bonuses, for instance. Others persuade employers that team incentives are the way to go, or that they need to reward quality, not quantity.

But all these fixes miss the point. Trying to correct the trouble by revising a pay-for-performance program makes as much sense as treating alcoholism by switching from vodka to gin.

The problem is not with compensation, per se, but with pushing money into people's faces by offering more of it for this or that. The more closely pay is linked to achievement, the more damage is done.

If rewards do not work, what does? I recommend that employers pay workers well and fairly and then do everything possible to help them forget about money. A preoccupation with money distracts everyone -- employers and employees -- from the issues that really matter.

Those issues might be abbreviated as the three C's of quality: choice, collaboration and content. Choice means workers should participate in making decisions about what they do. Collaboration means they should be able to work together in effective teams. Content refers to the job's tasks. To do a good job, people need a good job to do.

Doing these things is much more difficult than dangling goodies in front of workers. But manipulating behavior by offering rewards, while a sound approach for training the family pet, can never bring quality to the workplace.

I really think it would be foolish of us to think I (a business hobiest not professional) would know and understand this but not the Fertita brothers.

Dunno about creativity and fighting, but I know as a fact that the possibility of bonus money makes guys train harder than they would just for the announced money.

Go to TED.com and watch Daiel Pink's video on motivation for a very good explanation

this is from: http://www.techdirt.com/articles/20100603/0311539672.shtml

How Monetary Rewards Can Demotivate Creative Works
from the it's-the-link dept

Back in April, I wrote a post about Daniel Pink's new book, Drive, in which he highlights the rather stunning amount of counterintuitive research that suggests that money can actually make people less motivated to do creative works. Since then, I got a copy of the book myself, but it's in the stack with about five books that I want to get to before it, so I may not get to it for a while. However, a lot of folks have been passing around this great video of a 10 minute presentation that Pink did, which was then whiteboard animated. It's really well done and fun to watch and basically summarizes the idea in the book:
The same point is made in the presentation, but it clarifies it a bit. It's not that money isn't important. That finding would make little sense at all. As people note all the time, you need to be able to make money to survive. But, it's that once people have a base level of money that makes them comfortable, using monetary incentives to get them to do creative work fails. Not just fails, but leads to worse performance. As we noted in the original blog post about this, my initial inkling was that this highlighted a point often forgotten by economists and non-economists alike: while marginal benefit is often considered in terms of dollars, that doesn't mean that cash is the the equivalent of marginal benefit. That is, you can't just replace other benefits with cash. Sometimes people value other types of rewards even greater than the equivalent in cash. And, Pink's book and presentation highlight how it's often things like meaning and working on something fulfilling that are much more beneficial to people than cash. So it's not that money is bad for creativity -- but that having a direct pay-for-performance type scheme seems to create negative consequences when it comes to cognitive work (it works fine for repetitive work, however) -- and other types of non-monetary rewards are a lot more effective.

And while it isn't discussed in the presentation (and I don't know if it's discussed in the book), I wonder if the high monetary rewards in a "if you do this task, we'll give you $x amount" manner actually has a strong cognitive cost. That is, the pressure to then do the task well in order to "earn" that money actually ends up causing a creativity cost that takes away from the output. When you're just doing creative work for non-cash rewards, the pressure doesn't feel quite as strong. When you put the dollar signs in, it adds mental costs, and those costs outweigh the cash rewards. It's even possible, then, that the higher the cash reward, the greater the mental costs.

Related to all of this, Clay Shirky has also just come out with a new book, Cognitive Surplus (which isn't yet in the pile on my desk, but probably will be soon) that builds on an idea that he's talked about for years: about how all these claims that people doing stuff online for free is a "waste" totally misses the point. For the past few decades, people have devoted billions of hours to watching television. Yet, with the internet, rather than watching TV, they're actually doing some creative work (sometimes for free). So when looked at in isolation, doing stuff for free may seem weird, when combined in the larger scheme of things as a substitute for mind-numbing TV watching, it's actually a huge advancement.

Wired had the smart idea of having Shirky and Pink sit down and chat with each other, and they rehash some of these ideas, and how the concepts put forth in the two books seem to overlap. Moving people away from merely consuming content towards creating content leads to a huge boost in creativity and creative output -- exactly what we've seen happening. And, it's not because of monetary incentives -- in fact, it's often because of the exact opposite.

The more you think about it, the more this all makes sense, and the more you realize just how screwed up so many incentive structures are today, because so many people think that purely monetary incentives work best.

I like to find expert opinions more than my own, I find them more accurate =P Not taking a jab at you Kirik, I value your opinion when it comes to fighting/training. I'm just a couch jocky that loves the sport and business though so dont have much insider knowledge.

 Your boss comes in and asks if you can "finish" the report by 9pm tonight. You say you will try your best, he adds, if you do, you will get a $500 bonus. What do you do?



If you don't overthink it, you will realize how retarded it sounds to say offering a lot of money for a little extra effort is not effective.

Holy fucking FRAT!!! Phone Post

This is a bunch of politically correct over-sensitized drivel that certain segments of the sissified media would like for us to believe.

This is the equivalent of not scoring kids athletic events and treating adults as adolescents.

Bonuses work in business. Google Nucor Steel and read about their bonus structure. They make steel and they decided to give production employees bonuses for all production above their regular level.

. . . bonuses for production employees got as high as 150% of base pay. And that means obviously that production went through the roof.

Kirik - Dunno about creativity and fighting, but I know as a fact that the possibility of bonus money makes guys train harder than they would just for the announced money.

This is true, because those bonuses are often 4-5 times what they would otherwise make at the lower ends of the payscale, and the difference between having a good year, and not having enough for the year at all.  



For those making a good chunk of money, the added little bonus doesn't add any incentive--they are already incentivized to perform and perform well.

 

croy_00 -  Your boss comes in and asks if you can "finish" the report by 9pm tonight. You say you will try your best, he adds, if you do, you will get a $500 bonus. What do you do?

If you don't overthink it, you will realize how retarded it sounds to say offering a lot of money for a little extra effort is not effective.


If it is a simple, non creative task then you will do better. Say digging a hole, but if it is something that requires you use creativity study after study have proven carrot and stick (bonus) models take away from performance.

Macedawgg - 
Kirik - Dunno about creativity and fighting, but I know as a fact that the possibility of bonus money makes guys train harder than they would just for the announced money.
This is true, because those bonuses are often 4-5 times what they would otherwise make at the lower ends of the payscale, and the difference between having a good year, and not having enough for the year at all.  

For those making a good chunk of money, the added little bonus doesn't add any incentive--they are already incentivized to perform and perform well.
 



EXACTLY!!!! there could be an issue where the lower paid fighters might not be getting paid enough to allow for the other incentive strategies to work. Remember the base pay does have to go over a certain level from what Im saying to count.

Willin - This is a bunch of politically correct over-sensitized drivel that certain segments of the sissified media would like for us to believe.

This is the equivalent of not scoring kids athletic events and treating adults as adolescents.



These ideas all stem from studies following scientific method, please read some on the subject.

lenz0799 - 
croy_00 -  Your boss comes in and asks if you can "finish" the report by 9pm tonight. You say you will try your best, he adds, if you do, you will get a $500 bonus. What do you do?

If you don't overthink it, you will realize how retarded it sounds to say offering a lot of money for a little extra effort is not effective.


If it is a simple, non creative task then you will do better. Say digging a hole, but if it is something that requires you use creativity study after study have proven carrot and stick (bonus) models take away from performance.


Eh - a lot of jobs require creativity to some degree. The classicaly "creative" jobs like advertising or graphic design may seem so on the surface but in actuality those people follow the same boilerplate mold as many other jobs.

I think the results of the study are more influenced by the fact that people in the "creative" positions are naturally more right-brained and less responsive to money. They generally have less ambition than left-brained people so they don't respond to the bonus structure as well.

This study seems like a fluff piece to get research grants. It's completely counter-intuitive and patently false.

Check your facts please. The LEFT brain RIGHT brain theory was thrown out years ago because it has been proven so wrong so many times I'm not going to even source it.

Willin - 
lenz0799 - 
croy_00 -  Your boss comes in and asks if you can "finish" the report by 9pm tonight. You say you will try your best, he adds, if you do, you will get a $500 bonus. What do you do?

If you don't overthink it, you will realize how retarded it sounds to say offering a lot of money for a little extra effort is not effective.


If it is a simple, non creative task then you will do better. Say digging a hole, but if it is something that requires you use creativity study after study have proven carrot and stick (bonus) models take away from performance.


Eh - a lot of jobs require creativity to some degree. The classicaly "creative" jobs like advertising or graphic design may seem so on the surface but in actuality those people follow the same boilerplate mold as many other jobs.

I think the results of the study are more influenced by the fact that people in the "creative" positions are naturally more right-brained and less responsive to money. They generally have less ambition than left-brained people so they don't respond to the bonus structure as well.

This study seems like a fluff piece to get research grants. It's completely counter-intuitive and patently false.



Agreed. And the ridiculous assertion that creativity and fighting go hand in hand is an outrageous claim.


This sounds like the Organizational Behavior drivel that all MBA students are forced to take

interesting read. I will need to finish reading later.

This paper is SOOOOO off base. This is the material covered in HBR for organizations with teams of employees maintaining divisions and silos.


This CANNOT and SHOULD NOT be attributed to MMA in any way.

I think fighting and creativity go hand in hand, what is rediculous about that? Is your argument that the creative process is done more from coaches than fighters? I could see that but would throw out there that some if the most successful fighters create their own styles that work for them best.

MBA students would be forced to take this subject on, and they would be the most knowledgeable. Im not saying that just cause a guy has an MBA hes smart, we all know complete morons with MBA's, but this is what the best ones are saying