Do you think CEOs need the incentive of a big payout to do a good job? How about the tier of highest wager earners, which includes CEOs, who collectively took home 33% -- 1/3! -- of all wages in 2007? Do you think a big performance bonus helps them do better?
The evidence shows that people who do creative work actually perform worse when a financial incentive is dangled in front of them.
Dan Pink describes the economics in this short video. The short story is that financial rewards only work well under simple rules to achieve a clear goal. The reward narrows our focus.
Meanwhile, creativity requires a broad view. Bending the rules to uncertain ends. A narrow focus is a results killer.
Given that companies are constantly trying to lower costs, why wouldn't senior management of companies that give annual performance bonuses follow the evidence and get rid of them? Here's some possible reasons:
1. It's a setup that enables them to pay themselves generously.
1a. Particularly because it's so easy to game the results.
2. It forces workers to stay the entire year, until bonus season.
3. In theory, it allows cutting back bonuses if the company is not profitable. Given the bonus shenanigans during this financial meltdown, that's a hard argument to make.
4. It takes far more effort to create a company that motivates employees in other ways. Aka, management for dummies.
What does Dan recommend instead of financial rewards? Watch the video. (Via Bruce Eckel.)
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