A Cash Incentive: A Destroyer of Motivation

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A Cash Incentive: A Destroyer of Motivation

A few days ago, a friend of mine from New Delhi decided to move to Bangalore. He had a fabulous collection of antiques. Such as, exquisite old books and hand blew Murano glasses from generations ago. I knew how attached he was to them. He was nervous and unwilling to hand them over to a moving company. So the last time I visited, I offered to carry the most fragile items with me when I returned to the city. Two weeks later I got a thank you letter. Enclosed were two five hundred rupee notes.

For years, a City Municipal Corporation has been considering where to dispose its garbage waste. The authorities considered a few different locations for the landfill dumping in nearby villages. A team of social workers traveled there and recorded people’s opinions at a public meeting. Surprisingly more than 50% were in favor of the proposal. Their positive response can be attributed to proper disposal, the prospect of new jobs and so on. The team carried out the survey a second time; however this time they mentioned a hypothetical reward of Rs. 5,000 for each villager, paid for by tax payers, if they were to accept the proposal. What happened? Results plummeted: only 20% were willing to endorse the proposal.

Another example is children’s daycare centers. Daycare workers face the same issue the world over. Parents usually reached late for collecting their children after closing time. The staff has no choice however to wait. They can hardly put the last remaining children in taxis or leave them on a stone edging to a pavement. To discourage parental tardiness, many nurseries introduced fee for lateness. Studies show that tardiness actually increased. Of course, they could have instituted a huge penalty of, say, Rs. 2000 for each hour – as they could have offered 5 Lac to each citizen of the small village. However that’s beside the point. The point is small monetary incentives crowd out other types of incentives.

The three stories illustrate one thing: Sometimes money can de-motivate. When my friend slipped me two five hundred rupee notes, he undermined my good deed. It also tainted our friendship. The offer of compensation for the garbage disposal was seen as a bribe. It cheapened the public and patriotic spirit. Introduction of the late fees transformed its relationship with parents from interpersonal to monetary. It essentially legitimized their lateness.

Science has a name for this phenomenon: motivation crowding. When people do something for non-monetary reasons out of the goodness of their hearts – payments throw a wrench into the works. Financial reward erodes any other motivations.

Suppose you run a non-profit organization. Logically, the wages you pay are quite modest. Nevertheless, your employees are highly motivated because they believe they are making a difference. If you suddenly introduce a bonus system – let’s say a small salary increase for each donation secured – motivation crowding will commence. Your team will begin to snub tasks that bring no extra reward. Creativity, company reputation, knowledge transfer – none of this will matter anymore. Soon, whole efforts zoom in on attracting donations.

Who is safe from motivation crowding? Financial incentives and performance bonuses work well in industries with generally uninspiring job — industries where employees aren’t proud of the products or companies. They work simply because they get pay cheque.

One final tip for parents with children: experience shows that young people are not for sale. If you want your kids to do their home work, don’t reach to wallet. Instead, give them fixed amount for pocket money each week. Otherwise, they will exploit the system and soon refuse to go to bed without recompense.

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The detailed report is compiled using the proprietary research notes that I have written over last two decades.