Memo to Dan Pink and Friends: Incentives Do Not Undermine Employee Motivation

Editor's Note: I am proud to feature today's guest post from Dr. Gerry Ledford, who shares some key findings and points from his presentation at this week's WorldatWork Total Rewards and his recent WorldatWork Journal article.  As a big fan of Gerry's work, I am particularly pleased to be able to share his thoughts and wisdom with the Cafe audience.  Take it away, Gerry!

The rewards field is filled with mythology about what research has to say, and practice is guided by the mythology. Consultants, famous executives, the business press, and ultimately academics who don’t know their stuff monotonously repeat the popular wisdom until it becomes generally accepted as truth.  All too often the body of research flatly contradicts the popular wisdom. 

 Two of my favorite myths are Herzberg’s claim that money is hygiene factor rather than a motivator (not supported by his own data, by the way) and the undying faith in the idea that a happy worker is a productive worker (the underpinning of much of the work-life and best place to work movements).  We will leave a discussion of these myths for another day. Here I focus on a destructive myth, namely that extrinsic rewards such as monetary incentives undermine intrinsic motivation to such a degree that they make incentives ineffective. 

You might imagine that effects of extrinsic rewards on intrinsic motivation is an obscure academic topic of little interest to practitioners.  If so, you would be wrong.  In fact, this position was championed the authors of perhaps the two best selling books on rewards in history, Alfie Kohn (1993) and Daniel Pink (2009).  For example, Kohn claimed in his 1993 book that, The bottom line is that any approach that offers a reward for better performance is destined to be ineffective.” Furthermore, “Possibly the most compelling reason that incentive systems fail is . . . (that) extrinsic motivators not only are less effective than intrinsic motivation but actually reduce intrinsic motivation . . . Furthermore, the more closely we tie compensation (or other rewards) to performance, the more damage we do” (emphasis in original).  Both books were heavily referenced, but neither author was particularly qualified to review the hundreds of research studies on this topic.  Kohn was a high school teacher and Pink was a political speechwriter turned author. 

The research says something quite different than Kohn, Pink, and their friends suggest.    

• Monetary incentives generally lead to increased performance.  There have been six major reviews of the literature on incentives in the past 20 years, and there were several others during the 1980s.  As I demonstrated in my presentation at the WorldatWork meeting this week, all these reviews reached the same conclusion: monetary rewards increase performance. Even academic proponents of the Kohn and Pink position such as Edward Deci concede this.  So much for the claim that any negative effect on intrinsic motivation is so serious that it causes incentive failure. 
• Extrinsic rewards actually can increase intrinsic motivation depending on how they are implemented.  All relevant academic theorists agree on this point.  Good implementation means communicating the importance of the task and how the incentive works; setting specific, meaningful goals; providing supervisor feedback and support; hiring employees who want incentives; and building an incentive-oriented organizational culture.  The idea that incentives are actually a source of intrinsic (not just extrinsic) motivation is not a surprise to anyone who has seen a salesperson, production worker, or CEO engrossed in calculations of their next performance bonus payout and developing tactics to maximize the payout. 
• Rewards have no negative effect on intrinsic motivation for boring, routine work because the tasks have little intrinsic motivation to reduce.  This is important because much of the work of our society would not be done if we did not offer extrinsic rewards for task performance.  In fact, incentives (but not salary alone) can increase intrinsic motivation in routine work.
• The negative effect of incentives on intrinsic motivation can be manufactured in the laboratory, where most of the studies in this literature were originally conducted, but the effect disappears in real-world conditions.  A review of 43 field studies found that incentives actually tend to increase intrinsic motivation.

Compensation professionals who are familiar with our topic may have wondered whether their work on incentives is an exercise in futility, and doomed to fail because incentives undermine intrinsic motivation. Fortunately, compensation professionals can rest easy.  Extrinsic rewards increase performance because they increase total motivation (extrinsic plus intrinsic).  Any negative effects of rewards on intrinsic motivation can be easily avoided by the sound implementation of incentive plans.

ENDNOTE: Readers interested in more information on this topic are encouraged to see the article by Ledford, Gerhart, and Fung in the current issue of the WorldatWork Journal (Q2 2013) entitled, “Negative Effects of Extrinsic Rewards on Intrinsic Motivation:  More Smoke than Fire.” (Access the article on the USC site here.) The article offers an overview of the extensive literature on this topic. 

Gerry Ledford is Senior Research Scientist at the Center for Effective Organizations, Marshall School of Business, University of Southern California.  Much of his professional work focuses on employee reward systems.  He returned to the Center for Effective Organizations in 2012; he was a key contributor there from 1982-1998.  From 1998 to 2003, he held leadership positions at Sibson Consulting. Since 2004, he has been President of Ledford Consulting Network LLC.  He received a Ph.D. and M.A. in Psychology from the University of Michigan.  Gerry has authored over 100 articles and ten books and he frequently speaks at professional events.

Comments

[Joe Rice]

Thanks for the post!

I hope you get around to addressing Herzberg. I have to confess I subscribe to the hygiene camp, but I'm open to evidence otherwise.

On your second bullet, how can you be sure it's the incentive increasing motivation and not everything wrapped up in the "how it's implemented"? Without knowing more, it looks correlation attributed as a cause.

Dan Pink is a favorite whipping boy for the comp field but I think he's misunderstood. I didn't see Drive as in indictment on incentives so much as call to action to not to rely on incentives to be a panacea.

Again, thanks for the post and opening the dialogue.

[Fonda Peters]

Not this subject again! We went through enough turmoil when Pink's book was published, putting the comp. people in a bad mood. They don't care about intrinsic rewards and don't know much about them, despite their denials to the contrary. They treat employees like juke boxes and it's the best they can do, bless their hearts. Can we please move on to other topic they understand, like how to design salary grades!

[E. James (Jim) Brennan]

Thank you, Ann and Gerry, for a concise and cogent summary of the ACTUAL state of the art in compensation motivation practice.

Must admit that I frequently cite Herzberg's "hygiene" point mostly because it is so well (mis)understood, but I also agree that the immense motivational power of cash INsufficiency does not invalidate the positive impact of properly designed and implemented cash incentives. It's just easier to explain, because the Maslovian effects of inadequate cash are dramatically obvious, while the directed driving power of incentives can get lost in the details of process.

[Gerry Ledford]

Joe - Thanks for your thoughtful comments. I'll have to get around to Herzberg one of these days. The short answer is that the research data (even his own) just don't support his claim that money doesn't motivate.

Clearly, implementation matters - a lot. But if you are not implementing something that has motivational power, you won't get maximum performance increases. There have been studies that look at goals alone, good supervisors alone, etc., and they all matter to performance, but money makes the world go 'round. Leave it out, and you lose motivational power.

I think Pink is a favorite whipping boy because people hear his message, not misinterpret it. He acts like he discovered intrinsic rewards, and that the whole management field is ignoring that area. That had much more truth to it in 1965, when Skinnerian operant conditioning was dominant in thinking about rewards. But I never run into rewards professionals (or managers) these days who think that compensation is the only thing that motivates employees. They are much more likely to believe that motivating through incentives is hopeless after hearing people like Pink - that's the mythology I was addressing.

[Gerry Ledford]

Fonda: First, although there has been a lot of commentary (and hot air) about Pink's book, I haven't seen people take on the his underlying claim that negative effects on intrinsic motivation make extrinsic rewards ineffective. That's the contribution I attempted to make.

Your "juke box" comment perfectly summarizes Pink's position, but it is the classic straw man. I can't tell you the last time I met a rewards professional who believes that the only thing that motivates employees is money. Pink's book put rewards professionals in a bad mood because he characatured them. They knew all about intrinsic rewards back when he was still writing speeches for Al Gore and writing books on other topics.

[Gerry Ledford]

Jim: Thanks, and well said.

[Charles H. Green]

Sorry, this is so annoyingly written that it's really hard to accept the several truths that probably exist in it.

You call Alfie Kohn "a high school teacher." He was published in Harvard Business Review, has an award from the American Psychological Association, and has written twelve books. Not to mention education at Brown and University of Chicago.

You call Dan Pink "a political speech writer." Yes, with a Phi Beta Kappa and a Yale Law degree (not to mention editing the Law Review). Oh yes, and five books.

However, I'm not a big fan of credentials. To me something has to make sense (go check William James on that). In my 35 years of business experience in management consulting and exec ed, post MBA,, I have found repeatedly what those two have found; it was they who put words to what i'd been noticing all along.

I'll give one example: a manager at Cisco Systems once cynically told me, "If you give me a choice of two sales; one of a product at $1,000 with a 50% margin, and one of a service at $10,000 with a 40% margin, I'll sell the product every day. Stupid? Of course! But I get rewarded on margin percentage, nothing else."

I can think of no better example to prove Kohn's point, "Extrinsic rewards incent, all right; they incent people to seek more extrinsic rewards." It is easy to see the difference between such employees, who inevitably end up cynical and burned out, and those who are clearly motivated by much larger, and intrinsic, drivers.

I have spent 35 years watching corporate employees get seduced and then zombified by the siren song of extrinsic rewards – and seeing other much more optimistic examples of change and success, driven very much by the principles those two talk about.

The big simple truth in business, as I've learned it, is that values matter, commitment matters, meaning matters – and our education system, especially including business schools (I went to Harvard B-school, I can talk about it) has vastly over-stressed data, behaviors, monetary incentives, quantifiable metrics. They have under-stressed the things that matter, and that work in the real world. That's the reason so much of academia has buried itself in a blizzard of non-relevance, trying to turn social sciences into pale versions of physics.

Sorry, but count me unimpressed by an obsession with compensation studies, particularly if accompanied by snide, snooty and apparently jealous characterizations of those more widely published.

[Motivational Short Stories for Chiildren in Education]

Thank you for sharing the article about extrinsict and intrinsict motivation.

[Charles H. Green]

My comment on this post yesterday was, shall we say, written while somewhat heated. I'd like to comment in a more measured tone, if I may.

I wrote a blogpost about Accenture's then-CEO Bill Green, here:

http://trustedadvisor.com/trustmatters/accenture-ceo-bill-green-what-leading-from-principle-sounds-like

The thrust of it was that a group of his top reports saw incentives, particularly extrinsic ones, as critical to successful change – and Green strongly disagreed, stating that values should trump incentives in cases of disagreement.

Accenture is a bunch of pretty smart people. A representative sample of its leadership believed that people are and should be driven mainly by extrinsic incentives (at least until set straight by their CEO). In other words, that they should be measured and rewarded, in extrinsic fashion, by their performance against behavioral goals – even if, by their own admission, those actions were not the "right thing" to do.

In my experience, that belief is the norm, not the exception, in corporate America. Most managers believe in the power, and the correctness, of using primarily extrinsic motivation to drive behavior. You would not be far wrong if you characterized the predominant general management belief as being that extrinsic compensation is both necessary and sufficient to provoke significant behavior change.

Therefore the idea that compensation executives think of that as old Skinnerian claptrap is a curious one. It suggests either that:

a. compensation experts were very powerful back in Skinnerian days, and as yet haven't been able to overcome the inertial effect on general management, who apparently still believe it;

and/or

b. compensation executives are not very powerful these days, as it appears the fact that "All relevant academic theorists agree on [a] point" hasn't made much of an impression on management.

Pink and Kohn are not tilting at windmills. The dominant management belief is the behaviorist model. It is a knee-jerk reaction for most managers these days to go from "You can't manage it if you can't measure it" (itself false on the face of it), to "start paying people for moving the needle and everything will take care of itself."

I submit my two examples above – Cisco Systems and Accenture – as relevant, big-company counter-examples to your claim that "a review of 43 field studies found that incentives actually tend to increase intrinsic motivation."

Not in my experience.

[Donald W Johnson]

I was intrigued by the article but more intrigued by the discussions. I'm not sure I have what anyone would consider "credentials", however have been in sales and marketing most of my 30+ year career and can say from a personal standpoint that this is a much more complicated subject than anyone makes it out to be.

The monetary incentive (extrinsic)has alot to do with motivation. It is nothing if people are not paid enough (and they know it) and are not engaged in their work. Nothing works unless it is the whole package with all factors considered. It doesn't matter how much you are incentivised if you are not engaged in your work, therefore the two are absolutely tied together and cannot be separated. Personally, I have had many different incentives from salary, salary plus bonus, straight commission, etc. and none of them motivated me if I was not happy at work. They only made me come to work for a paycheck, yet they all motivated me differently at different levels of engagement and sometimes fear.

If I did not like how I was treated, didn't like my boss, did not get along with co-workers, or was expected to sacrifice my integrity, then it just didn't matter how much I was paid. Then it becomes even more personal for each individual as to how much they are willing to sacrifice and how passive or assertive they are.

Then the question also arises; how are volunteers motivated? There are studies and real life examples that have proven that volunteers will be incentivised intrinsically and you cannot possibly incent them otherwise as they are volunteers. You can reward them with non-monetary rewards to make them more productive and engage them. The degree to which they find the work rewarding is directly proportional to how productive they are.

An environment must be created that allows for all variables to fit together into a comfortable, motivating, and rewarding experience where everyone gets along with each other for maximum effectiveness. Everything is a degree of perfect with no situation being perfect.

It is all about having a rewarding work experience. Seeing the result of your labor is a huge intrinsic reward.

[E. James (Jim) Brennan]

Great exchange of opinions here!

Any idea that works well when properly applied can be a terrible failure when improperly applied. Errors in design and execution do not invalidate core principles. That said, absolutist arguments have no place in discussions of human behavior, psychology or labor economics, especially from people who make sweeping generalizations that ignore factual evidence abundantly displayed in real life. Mind you, academic settings have a rather tenuous relationship to the "real life" of the work world.

Incentives ARE intrinsic rewards to some people, you see. I know sales managers who insist on extrinsic incentive programs because they consider them essential for their personal motivational patterns. They feel they NEED goals tied to contingent compensation systems to activate themselves.

It's not a matter of right or wrong. Who are we to argue with what people want? We have the tougher job of supplying a menu of "currency" that spans whatever intrinsic values, cash, perquisites, contingent rewards, positive consequences, negative consequences, Maslovian pyramid levels, Herzbergian factors and everything else that may be appropriate to the affected workforce. Ain't easy, but that's the task we signed up for.

[Jim Sillery]

Do incentives motivate people? The fact of the matter is that we just do not know. We assume cause and effect one way or the other, but what we are left with is opinions and not facts.

People stake out their opinions and back them up with research. But this is the same research that says that the Starbuck that I had on Monday is good for my heart, but the one that I will have tomorrow may kill me. (Mark Twain once said that "there are three kinds of lies: Lies, damn lies, and statistics.)

I am not even sure that we can agree on what motivate means. As a Psycology student, I took rat lab. We used incentives (hungery rat hits lever to get pellet) to modify behavior. So there is evidence that incentives can modify behavior. Is that what we mean by motivation? If so, a motivated employee may not be an engaged employee.

For every story about incentives helping to drive results, their seems to be a story about how the elimination of incentives helped to drive results. So, what is the difference? Culture? Maybe motivation has to be defined in a situation specific manner that is focused on desired outcomes and perceived values?

Do incentives motivate? It seems like the answer is that it depends. As compensation professionals, it is important to have an understanding of what the answer depends on before we offer up a solution.

Do incentives motivate? It seems that sometimes they do. It seems that sometimes they don't. It seems that there is no absolute wrong or right answer. It is not easy, but our job is to figure it out.

[Jay Schuster]

Sorry I am coming to this piece by Dr. Ledford late in the posting game. If anyone was at the WorldatWork Conference you enjoyed an excellent panel discussion led by Gerry that included some of the leading researchers in our profession. And you also learned that Gerry won the 'Article of the Year Award' for an excellent piece he and one of his clients published in the WoWo Journal. I say this because in magnifies the importance of what Gerry says when he translates research in our profession into usable applications material.

If you were at the conference you also got a sense that the large advocates of 'best practice' and 'best place to work' are also those that have the largest booths and spend the most sponsor money everywhere. It is just not popular to advocate the 'heavy lifting' that goes with such things as paying for performance or listening to our CEOs when they say our profession needs to become better aligned with business realities. It is much easier to 'follow prevailing practice' and call it 'strategy' than it is to take a look at what you are up to and asking whether this is valuable to the businesses that support our profession.

Gerry and the people in his corner will never be seen giving away teddy bears at a booth at WoWo or SHRM but it is important that we remember what he said when we look back and find that our strategic responsibilities are now performed by someone in legal and finance and our job is relegated to policing compliance issues and picking vendors for pet insurance.