The Unpredictable Consequences of Using Money as an Incentive

It seems like common sense: a larger reward encourages a greater effort. So if you need to inspire a person or team to strive harder, an obvious tactic is to offer more money. Reality, however, is not that simple.

Even the mere mention of money can be enough to change our mindset: It has the power to make us more selfish and competitive, while also putting some useful social contracts on hold. Meanwhile, large financial rewards transfer challenges that would have been pursued for passion or creativity’s sake into emotionless financial exchanges.

Let’s explore an example: Suppose you have been writing a book in your spare time. The project is a labor of love, something you’ve always wanted to do.

Now imagine that someone reads your draft when it’s halfway finished and writes you a check to finish your book. The project now becomes your full-time job. This may seem like a good thing on the surface, but it immediately changes your perspective of the work. Your principal reward is now financial. It’s something that must be done, and there are other people now relying on its outcome. Creatives who take their hobbies and side projects pro are familiar with this phenomenon.

So, what happened? The effect of monetary incentives on people’s behavior is tricky to predict and can often be counter-productive. Science has revealed some unforeseen consequences of getting cash involved, both with individuals and teams.

The effect of monetary incentives on people’s behavior is tricky to predict and can often be counter-productive.

Money Subverts Our Morality

Consider a study published in 2000 by Uri Gneezy and Aldo Rustichini about the effects of fines on parents’ tardiness when picking up their kids from day care. The day care made a new policy that went something like this: Arrive late to take your child home, get slapped with a fee. Despite the fines, the number of parents arriving late gradually increased, in many cases doubling.

Why? The parents now knew that the fine was the worst that could happen if they arrived late. Before the fines were put in place, a desire to avoid the guilt of keeping their child and the school’s staff waiting motivated the parents to show up on time. Now, the parents were effectively paying for an afterhours service. By introducing money into the equation, the day care centers undermined an unspoken agreement built on social trust and good morals.

Think how this same switch could impact your relationship with your work. When you slack on a passion project, the victim is your creative satisfaction, which automatically drives you back to the grindstone. After all, your creative fulfilment is sacred. By contrast, slack on a paid project and it’s tempting to see the loss only in financial, not moral, terms. It becomes a job you didn’t complete, a simple monetary transaction you choose to forgo for some downtime.

Money Skews Our Perception of Time

In the 1970s, researcher Edward Deci had volunteers complete puzzles, but only paid some of the participants. On a later testing day, those who’d been rewarded financially were told there’d be no more payments. They and the other volunteers were then left waiting in a room with puzzles.

Those paid earlier now left the games untouched and grew bored. Meanwhile, the volunteers who had previously completed the puzzles just for the challenge spent the time happily playing more puzzles. What happened? The paid participants would have been “working for free” had they picked up a puzzle (i.e. not a good use of their free time), whereas the unpaid participants continued to see the activity as entertainment.

Researchers have also shown that thinking about how much you earn on an hourly basis can change the way you feel about time. Sanford DeVoe and Julian House specifically showed that people prompted to think about their hourly wage were less able to enjoy downtime, such as listening to music. After all, when you make $10 an hour, two hours of music listening will “cost” you $20.

Thinking about how much you earn on an hourly basis can change the way you feel about time.

Money Makes Us Lazy

Money gets even messier when you involve a collaborative group. In some circumstances, higher financial rewards can actually undermine team performance.

How? Imagine a team of three designers working on a new magazine. Each person conducts their research and, in turn, proposes designs for the magazine’s front cover.

Pretend you’re the client and you offer the designers a large fee dependent on good results. This is where a phenomenon known as “incentive reversal” comes into play.

The promise of that large fee convinces the first designer that she can relax a bit, confident that the other team members will pick up the slack. She thinks she can freeload on the effort they’re bound to invest to obtain that large fee. Except it doesn’t work like that. In reality, later contributors are likely to respond by slacking themselves. This is how the promise of a large team fee backfires.

The same problem doesn’t occur if the fee is modest. Now, the first designer reasons that if she doesn’t put in a good effort, the others will probably relax, too, because it won’t be worth their time to work extra hard for a modest reward. Thinking this way, it’s not in the first designer’s interest to slack off because then the rest of the team will too, and no one wins. So the first designer works hard, and the rest follow suit. This is how a team actually ends up working harder in the context of a modest fee.

Although, the promise of a big reward hypothetically means it would have made financial sense for later contributors to compensate for the early slacker, that’s not how people actually behave.

All this is not to suggest that money doesn’t have some real motivational benefits. After all, no one has ever paid the rent in “passion.” Rather, we should be aware that the introduction of more money is not a cure-all and can sometimes exacerbate problems instead of solving them. Treasure your passion projects and think twice before introducing money into the mix. Once money is involved, it’s nearly impossible to go back.

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