Time to Startup!

The BizFilings blog covering business tips and trends.

When More Is Less: The Surprising Paycheck Paradox

Published on Jan 26, 2011

Summary

Read our article, 'When More Is Less: The Surprising Paycheck Paradox' at 'Time to Start Up,' the small business blog by BizFilings.

© Ginasanders | Dreamstime.com © Ginasanders | Dreamstime.com

 Are you having a difficult time with employee morale? Providing larger cash bonuses may not be the answer.

One of the most surprising studies yet on motivation came out of MIT in 2010. Researchers gave subjects a set of challenges with three different reward levels. Subjects who achieved the objective by a small margin received a small monetary reward. Those who did moderately well received a moderate cash reward, and the subjects who hit it out of the park received a substantial cash reward.

You would think the result was obvious—that the incentive of a large reward would lead to improved performance in subsequent challenges—but that was not always the case. If the task at hand involved nothing more than mechanical skill, with very little demand on the brain, the system of rewards worked as you would expect: the prospect of more pay led to greater productivity. But once the task called for even a little bit of brainpower or creativity, the larger reward not only failed to motivate, but actually caused performance to decline.

This shocking result was consistent through all levels of compensation, and the effect actually increased as pay increased. In short, when subjects got the highest compensation of all, their subsequent performance was the worst of all.

If you'd like to dive deeper into this study watch this 10 minute video presentation -The surprising truth about what motivates us.

This is just the latest indication of a disconnect between what employees want and what employers think they want. A study by the NOVA Group asked employees to rank ten incentives according to their importance, then asked their employers to guess how their employees would answer. 

Employers thought their employees would rank the incentives as follows:

  1. Good wages
  2. Job security
  3. Promotion opportunities

 In fact, these ranked 5th, 4th, and 6th respectively. 

More important to the employees were:

  1. Interesting work
  2. Appreciation and recognition
  3. Feeling "in on things"

Now before you go out and slash your workers' salaries to get better results, read the fine print. The MIT researchers found that pay is far from irrelevant. People must receive enough money to take the issue of compensation off the table. But after that point, once fairness has been achieved, money is much less important than other considerations for jobs that require any degree of thought. Autonomy, a sense of larger purpose, and opportunities for mastery all rank higher than compensation.

This result is a wake-up call for employers who put employee engagement on hold, thinking money was required and knowing it wasn't available. Companies that quickly incorporate the lessons of the MIT study into their incentive programs can energize their employee engagement without breaking the bank.

For more in this topic visit Toolkit.com:

How to Recognize and Reward What Rewards Can you Give?

What are some of the innovative ways you motivate your team?