Knee Jerk Reactions and Conventional Wisdom

Reward and recognition programs have become somewhat reflexive in business.  Similar to a Doctor hitting your knee with his/her little rubber hammer and looking for the involuntary response from the patellar tendon – businesses install and conduct incentive and reward programs without really thinking through the impact they will, should and could have.

Designing programs in this way leads to poor performance and lost money.

A perfect example is this article on PsyBlog – Do Big Money Bonuses Really Increase Job Performance?

Conventional wisdom would say that providing a big bonus would drive performance.  However, studies conducted in both India and the US show that offering a big bonus for increased performance actually results in lower performance.

The authors make the point that big bonuses may actually make us more tightly focused and therefore less productive. 

Here’s the I2 spin – if the bonus is sufficiently large, participants in the program will behave in a way that reduces their risk of failure thereby reducing their desire to work in a way that might cause that failure.  In other words they start working much more "safely."  They start to think about each individual step in the process, instead of getting into the "flow" of the process where work becomes fluid and easy.  Too big a bonus and the idea of trying something "new" goes out the window in favor of the tried and true.  A pretty big problem today where innovation is the new black.

Therefore, if the bonus is big enough, the participant actually increases their chance of missing the goal by increasing their focus on not failing.  Counterintuitive, eh?

The key point in this is that there is a balance between the objective and the reward.  We need to look at business performance problems from a behavior point of view and not a results point of view. 

Break down the chain of behaviors that lead to a result and rewarding ongoing mastery of the few important behaviors in that chain – with smaller, more frequent rewards.  This will allow participants to focus on those important few things.

Reducing the size of  the bonus and spreading it out gives the participants the ability to look for new ways to do the task without worrying about "losing" the big reward.  If they fail in the new behavior, they haven’t lost that much (even though they didn’t loose anything because they never had it to begin with – but that’s another psychological issue – pseudo endowment.)

Smaller, more frequent rewards – will help reduce a maniacal focus on the "outcome" and increase  focus on the process – and success.