As I watched Dan Pink’s TED talk on ‘The Puzzle of Motivation’, I was extremely struck by the idea that excessive monetary incentives can have the exact opposite effect on productivity that it is trying to achieve – in particular relating to tasks that require more complex and creative thinking. In traditional corporate governance literature, it says in no uncertain terms: align your managers with the company’s goals – incentivize them with pay rises, bonuses and stock options to boost productivity. The notion that this concept is wrong is something that is truly intriguing.
Pink offers that this is a robustly tested finding, yet so often ignored. Businesses are doing the exact opposite of what is predicted by using incentives as the primary motivator of work in so many cases. When we think about the upper management of a company, their responsibilities are exactly what Pink refers to as tasks that require motivation other than monetary rewards. By its very nature, corporate strategy is uncertain as it deals with the future, and hence the work of top executives are so often unstructured and complex. Yet, these are the very same people who are the most greatly incentivized – the highest paid CEO in the United States last year was Charif Souki of Cheniere Energy Inc., with a total remuneration package of $142 million! Out of this, $133 million came in the form of long-term stock awards (i.e. extrinsic motivators). To be fair, he earned this (well, the amount is perhaps debatable..) by leading the company to outperform the S&P 500 Index five-fold during the past financial year.
Yet, when we think about the types of people who are in these top end positions, one character trait that most likely all of them share is ambition. Using Judge & Kammeyer-Mueller’s definition of ambition as the persistent striving for success and accomplishment and focused on extrinsic rewards as motivation, one potential source of conflict comes to mind. For these extrinsically-motivated top executives, how can we reconcile Pink’s assertions that we should do away with if-then focused incentives which he claims destroy creativity? Is there any way to make them more intrinsically motivated, and give them simply a hygienic level of monetary reward? One far-fetched but potential course of action is to remove these incentives completely and allow those unmotivated by extrinsic rewards to rise to the top. In that case however, it becomes apparent that the pool of suitable candidates shrinks massively. When looking for the best talent to lead an organization, excluding a huge proportion of candidates seems like a counter-productive solution.
According to Ledford, Gerhard & Fang in their paper entitled ‘Negative Effects of Extrinsic Rewards on Intrinsic Motivation: More Smoke Than Fire’, focusing solely on intrinsic motivation is not a viable or practical strategy for corporations. They argue that contrary to what Pink asserts to be a well-documented phenomenon that extrinsic reward lowers or even ‘extinguishes intrinsic motivation’ and hence ‘diminish performance’, the relationship between extrinsic and intrinsic motivation is not so clear. The authors outline the major theories concerning the effects of extrinsic rewards on intrinsic motivation in the table below:
The study uses a review of reviews approach of over 100 studies on intrinsic vs extrinsic motivation to look for overall consensus and came up with the following 5 conclusions:
- Motivation is a sum of extrinsic and intrinsic motivation and it is clear that extrinsic rewards can be used as a means of increasing productivity
- It is possible for extrinsic rewards to result in increased and decreased intrinsic motivation, but are based on specific situations and should not be stated generally
- Rewards have no detrimental effect on routine work as these tasks have little to no intrinsic motivation to begin with (this agrees with Pink’s assertions)
- Certain types of rewards such as praise significantly increase intrinsic motivation, but rewards that do not reward competence have more neutral effects
- Rewards that are simply given tend to reduce intrinsic motivation – interestingly, this suggests that paying a salary is counter-productive to efficiency, but practical use of this information is limited as most jobs will never be filled without a salary
With that in mind, we note that the bonuses put in place for CEOs generally align with the overall literature on extrinsic and intrinsic motivations. Furthermore, extrinsic motivation has does not have a uniform effect on people. Especially for people who are driven by ambition, extrinsic rewards not only provide strong motivation to succeed, but also help to increase intrinsic motivation if they are well-designed and tied to the successes of the individual.
Ledford, G. E., Gerhart, B., & Fang, M. (2013). Negative effects of extrinsic rewards on intrinsic motivation: More smoke than fire.
L. Marcinek, C. Melby & Z. Shauk, 30 April 2014. ‘Top-Paid U.S. CEO Emerges With $142 Million Pay Package’ Bloomberg.