How to wrap up a bonusPeople overemphasise the effect of extrinsic incentives on others

In this study participants were asked to assess which positioning of a $1,000 bonus for hitting their performance targets at work would appeal to them personally and which would appeal to others

Well done for hitting your performance targets, you’ve earned yourself a $1,000 bonus. Now you can put that deposit down for that new car you want.

OPTION 1

Well done for hitting your performance targets, you’ve earned yourself a $1,000 bonus. Now you can put aside some savings for a rainy day.

OPTION 2

Well done for hitting your performance targets, you’ve earned yourself a $1,000 bonus. You’re really important to this company and we really value your contribution.

OPTION 3

When asked which positioning of the $1,000 bonus would appeal to them personally, most people say option 3

When asked to rank the options in terms of what would appeal to others, most people rank option 1 as most fulfilling, followed by option 2

By choosing option 3 as their preferred positioning, people are indicating that they would be most motivated by intrinsic factors – feeling like they’re contributing something positive, they’re good at their job

Choosing option 1 for other people, suggests they think others would be most motivated by more extrinsic factors such as a new car

Conclusions

1. People have an extrinsic incentives bias – we predict others will be more motivated by extrinsic incentives than they actually are

2. This bias can undermine the effectiveness of bonus schemes in organisations due to misguided positioning

ReferenceOn the social psychology of agency relationships: lay theories of motivation overemphasis extrinsic reward Organisational Behaviour and Human Decision Processes 78 (1999) 25-62 Chip Heath