Why Carrots and Sticks Fail

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Most likely, your intuitions about how to motivate people are dead wrong.

Mine were too, before I read Drive by Daniel Pink. Pink makes an extremely compelling case for why it is time to put down our carrots and sticks and leave them behind in the 20th century were they belong. How he arrived at that conclusion is fascinating as well, because it had nothing to do with touchy-feely ideas or a socialist agenda, but rather with cold, hard empirical facts.

The Federal Reserve Bank, the University of Chicago, and the London School of Economics are all institutions that believe in checking the basic assumptions on which their ideologies rest. So, in recent years they’ve all conducted extensive social experiments to determine if incentives work the way most people intuitively believe they do. So the question is this: How effective is a monetary reward system when it comes to encouraging the behaviors you want more of punishing the behavior you want less of?

One relatively simple social experiment yielded results that stunned the researchers conducting it. They gave a group of MIT students various tasks to complete, and then they provided three levels of monetary rewards to incentivize them–management 101, right? They discovered was that as long as the task required mechanical skill, the system worked; the greater the monetary reward, the better the performance. But, once the task called for even rudimentary cognitive and creative skill, the larger reward led to poorer performance.

Then the researchers decided that perhaps they needed to rerun the experiment in a place where the monetary rewards would be considered more significant, so they went to India. In that experiment, the highest level of incentive was equivalent to two times an individuals’ monthly income. But still the results were the same; the higher the monetary incentives, the worse the performance.

What can explain this result, which seems to run counter to any logical explanation?

Pink posits–and I agree with him–that financial incentives tend to dull thinking, hamper creativity, and restrict our minds. We are focusing on the money, not the problem. So, the first part of the solution is to do what Pink calls, “taking the money off the table” by making sure that people have enough of it. When employees are paid generously they can stop obsessing about their lack of money and focus on the task at hand.

The next step is to appeal to individuals’ intrinsic motivations. There are three of them: autonomy, mastery, and purpose.

Autonomy: People have ideas and passions they want to pursue. As much as possible, let them. Each person also has a specific way they want to accomplish their work and go about solving problems, so as much as possible, let them. To illustrate this point, Pink talks about Google’s policy that allows employees to use 20% of their time to work on and develop their own ideas. Half of Google’s new product ideas have come from this 20% time. Technology companies are becoming extremely flexible in other ways. Increasingly, employees are being allowed to create their own schedules and form their own teams. They are being evaluated on what they produce, not how much time they are at their desks. They are being respected for how well they can solve problems, not how well they follow instructions.

Mastery: Whether it is playing golf or playing an instrument, people love to get better at challenging things. In a corporate environment, individuals find motivation in mastery too, whether that be building complex financial models or conducting large-scale marketing research. The long process of becoming really good at something is itself a reward and makes us feel good about ourselves.

Purpose: People want their work to count for something. They are eager to work and contribute in the service of something other and larger than themselves. The best talent is flocking to places like Google and Tesla Motors not primarily for the compensation, but for what those places represent and the meaning in their own lives that those organizations can give them.

The best way to motivate people on an assembly line is still with monetary incentives. But when it comes to motivating knowledge workers, our intuitions have failed us. In this day and age, humans need to be engaged, not manipulated. We need to foster creative and dynamic thinking, not stifle it.

So pay your team well, and create an environment were autonomy, mastery, and purpose are possible.

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