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Do bonuses make us work harder? Should disruptive students be paid for attending school? Should public programs intended to encourage smokers to quit include financial incentives? Neoclassical economics suggests that individuals work harder for greater rewards. Although late capitalist societies have embraced this principle, bonuses are imprecise tools and have been found to have some counter intuitive effects. Can studies of non-capitalist societies help to explain these effects?

In 1920 Max Weber recorded the effect of doubling the wages of an agricultural labourer in Silesia employed to mow land on contract: he halved his output. Weber labelled this indifference to incentives as ‘primitive traditionalism’ and predicted that it would soon be overcome by the spirit of capitalism. Bronislaw Malinowski described the frustration of European traders who could not persuade Trobriand Islanders to dive for pearls when their gardens were producing enough to meet their everyday needs. Expressed in the language of the time, Malinowski was told: ‘the god-damn niggers won’t swim even if you stuff them with kaloma*and tobacco’ (1935). In 1970 Edwin Ardener described how the Bakweri of the West Cameroon were drawn reluctantly into waged labour. Those who accepted wages from plantation owners were described as witches who killed their relatives and children, turning them into zombies and forcing them to work on a distant mountain, driving lorries for their wage paying overlords.

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Historical resistance to incipient capitalism is to be expected: the forging of a working class from the peasantry is a cultural, as well as an economic shift. One might expect fewer of these clashes of ideals among contemporary European workers, and anticipate that increases in wages and in particular incentives and bonuses function unequivocally to improve performance. However, economists suggest that this relationship is anything but straightforward.

Where tasks are mechanical and repetitive, well designed incentives may increase productivity. However, if applied to creative tasks incentives can be ineffective or even counterproductive. In one experiment Teresa Amabile of the Harvard Business School, asked 23 professional artists to present ten commissioned and ten non-commissioned works to an expert panel who were not informed about the purpose of the study. The panel rated the commissioned works far lower in terms of creativity and technical quality.

The most frequently cited evidence for the negative impact of incentives on heuristic, creative or other regarding tasks is based on experiments with blood donors, including Richard Titmuss’s 1970 book, The Gift Relationship. Titmuss criticised the commercialization of the blood donation in the US, comparing it unfavourably with the voluntary system in the UK. He argued that financial incentives reduced rather than increased participation and created significant inefficiencies, including the high incidence of serum hepatitis among American recipients.

Titmuss’s work has been influential, but also contested. Repeat experiments have produced mixed results. In 2005 Mellstrom and Johannesson showed that the effects of financial incentives on Swedish blood donors were statistically insignificant among a group of 262 subjects, and also among the 109 men. However, among the 153 women 52% of those asked to donate blood voluntarily agreed to do so while only 30% agreed to do so when offered a financial incentive, suggesting that the impact of incentives on donation may be gendered.

The most recent application of this insight has been to charitable giving and the practice of offering ‘premiums’, or ‘thank you’ gifts to donors. George Newman and Jeremy Shen, researchers at Yale, found that premiums have a negative impact on contributions. Their explanation was that the gifts activated self-regarding motivations, ‘crowding out’ altruism. Kevin Schulman of Donor Voice refers to premiums as ‘crack cocaine’ suggesting that they wreck donor lifetime values by contaminating philanthropic intentions with base, selfish instincts.

You might be tempted to think, ‘well that’s alright for charities and artists, but back in the real world: money talks’. However, the evidence suggests that this distinction is not so clear cut. In 2009 Bernd Irlenbusch of the London School of Economics used 51 cases of performance related pay to conclude that, ‘the provision of incentives can result in a negative impact on overall performance’ because ‘financial incentives may indeed reduce intrinsic motivation and diminish ethical or other reasons for complying with workplace social norms such as fairness’.

A number of firms, including Apple and Zappos, the North American online shoe seller, are paying heed. Rather than offering performance related rewards, based on a model of extrinsic motivation, they offer new employees an incentive to leave, currently $1000 at Zappos.  The purpose of this offer is to identify those employees who do not share the vision of the company, which is to exceed customers’ expectations regarding service. Experience has taught them that it makes more sense to pay the people who don’t share this vision to leave than it does to attempt to pay them to change their minds.

*shell discs

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Written by samkelly2014

March 18, 2014 at 10:15 am

Posted in News

Tagged with , , , ,

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