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Big Bonus, Big Results?

Posted by Brandon Bernard on Mon, Apr 08, 2013

Last month, we began this series by looking This'll solve thingsat the main causes of turnover. This month, here is a glimpse at the correlation between bonuses and motivation.

So, we all know that motivation is easy. You can simply keep an employee motivated by throwing gobs of money at them, right?

Think again.


The science of motivation has been a hotly debated topic since the days of Abraham Maslow. Psychologists no longer hold claim to pulling back the curtain on what motivates people. Let’s get away from our main industry for a moment and follow the work of Dan Ariely. Dan Ariely is a professor of psychology and behavioral economics at Duke University. In his most recent book, The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home, he took a look at Wall Street. In 2009, as the economy was in shambles, most of the country was surprised to learn that bonuses on Wall Street, despite terrible performance, had grown by an estimated 17%. Many companies on Wall Street argued that this was necessary retention tool to keep some of their top performers.

In an interview on the Motley Fool Money Radio Show, Dan pointed out several issues with some of these bonuses. Many of the highest bonuses cause an incredible amount of stress. Though people claim to work better under stress (mostly college students justifying their procrastination), studies show that isn’t true. So when high bonuses come into the equation, people tend to get overstressed and perform ‘quite mediocrely.’ Dan continued,

Imagine you were going into a brain surgery and you wanted to really motivate your surgeon. What would you tell them?  Would you say, “Hey, if you do this well I’ll buy you a boat and if you don’t do this well, I’ll sue you”?  And now imagine that 50% of the time when they operate on you they think about the boat and [the other 50%] they think about being sued. Is this really what you want? … So you can ask yourself, are people purely motivated by money?

This simple analogy makes it quite clear that offering a huge bonus may not be the best way to motive your employees to do their best. Bonuses are a piece of what motivates people but if you think about all of the things that motivate you, you will realize this is more complex than just how big your paycheck is. Dan does point out, however, that big bonuses work really well for physical tasks, like construction, but with cognitive tasks, these bonuses only cloud the employee’s ability to do their tasks.

Bonuses can work and can be important. Before you get too crazy with your bonuses, you may want to look at making sure they are big enough to retain but not too big to cloud judgment. In a couple of months, we will come back to motivation and how to properly do this to get the best out of your employees. Next month, however, we will look more at retention and what causes employees to stay.

Tags: Human Resources

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