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Financial Incentives under the Spotlight

Submitted by  on February 27th, 2010

Dan Pink examines the common management notion that financial incentives drive employee performance. Scientific studies spanning the last forty years show that financial rewards boost performance in only a limited range of circumstances. These are where the task is routine and rule-based and in which there is only a single solution. Where the work involves judgment, creativity or innovation, financial rewards lead to a decrease in performance as people focus on the extrinsic reward instead of broadening their mind to possible solutions. Financial rewards can lead to impaired performance even for jobs that require a modicum of cognitive thinking.

A meta-analysis of 51 studies on pay for performance plans, led by Dr. Bernd Irlenbusch of the London School of Economics, concluded, “We find that financial incentives … can result in a negative impact on overall performance.”

For many jobs in the 21st century, employers will elicit peak performance not by monetary rewards, but by creating jobs with autonomy, mastery and purpose. Find out more by viewing the Dan Pink video.

What do you think? How do you use financial rewards in your organization?

Posted in Performance, Research, Talent | Comments (0)

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