At least since Dan Pink’s legendary TED Talk on the Puzzle of Motivation, word has spread that performance-based incentives in creative tasks shift intrinsic motivation in favour of extrinsic motivation, which ultimately leads to low performance. The empirical evidence behind this is extraordinarily robust. Not only that. Subjectively, these results are also well understood. As soon as someone learns to do something only for the sake of the reward, that person will show less eagerness than someone who tackles a task out of inner drive.
Underlying these findings is a recurring experimental paradigm in which two groups independently solve a task or engage in creative activity (e.g. painting pictures). One group is offered a reward, the other is not. In the end, it becomes apparent that in creative tasks, the group without a reward performs better than the group with a reward. If you take away the reward from the group with the reward, their performance goes down completely. Much of what we know about the motivational effects of incentives is based on this simple paradigm.
In many companies, the resulting findings have underpinned the consideration to refrain from variable incentives, especially in creative areas – a trend that is downright cheered by numerous academics and thought leaders.
The abolition of individual bonuses gained further momentum for another, perhaps even more important reason. We now know that individual goals coupled with individual incentives not only threaten intrinsic motivation, but also reduce the willingness to put team goals above individual goals. Individual bonuses mutate colleagues into competitors. And that is what you don’t want.
These two findings, coupled with the insight that creativity and teamwork are crucial in a modern working world, suggested the practical conclusion to consistently refrain from individual bonuses. Individual incentives seem suitable at best when (boring) tasks are performed repetitively within divided labour.
So far there is agreement. The scientific basis and its practical implications are clear and I go along one hundred percent. But unfortunately, things are still not that simple. In fact, we are dealing with a fundamental dilemma for which, as far as I know, there is no solution.
Yes, rewarding employees individually and performance-related can weaken their intrinsic motivation and team orientation. However, if high-performing employees in particular are not rewarded on the basis of performance, not only their motivation but also their loyalty to the company is jeopardized. Bonuses at team level alone demotivate particularly high-performing team members.
At this point, the objection usually follows that there is no individual performance in teams. Teamwork is a system of interdependent tasks and actors and it is the team’s performance that counts. It is about the joint interaction and not about the actions of individual stars. Either the team as a whole is successful or no one is. Individual success is not intended in teams. Those who do so nevertheless have not understood what teamwork is.
Of course, what is relevant above all is what a team achieves as a whole. Nevertheless, I only partly follow this line of argument. Of course, there are differences in performance even in teams that work interdependently. Even if Price’s Law, according to which half of a group’s output is achieved by a square root of the group members, or the well-known Pareto Principle are only applicable to a limited extent, we must nevertheless assume that team success is naturally and frequently dependent on the performance of a few. To put it more simply and vividly: every team has its Messi. Perhaps every successful team needs its Messi.
This is less about the question of how to measure performance operationally, but more about the subjective experience of the players. People are extraordinarily sensitive in this regard, not because they have learned this through socialization, but because mental, unconscious structures dominate here that are already many millions of years old. Treatment that is perceived as unfair sometimes leads to extreme, emotional defensive reactions. This can be demonstrated in animals, as for example Frans de Waal has impressively demonstrated.
Let us recall the experimental paradigm explained at the beginning: Two groups perform a task, one is rewarded, the other is not. What would happen to the non-rewarded (in most experiments better performing) group if it knew that the other group was receiving a reward for the same activity? Not only would their intrinsic motivation collapse, but also their willingness to continue participating in the experiment at all. The classical, experimental paradigm, in whose findings so many companies increasingly rely, ignores processes of social comparison, which does not change the fact that it is precisely these that have a massive impact on the experience and behaviour of employees in the real working world.
In consequence, this means that you either demotivate your Messi or lose him in the long run if he or she is not remunerated better than his or her colleagues. Those who reward performance individually are making a mistake. Those who do not are also making a mistake. Which mistake is greater? I don’t know. What should a company do now? I am not in a position to make a general assessment of that either.
Of course, we see attempts at solutions in practice. But to what extent these really save us from the dilemma is difficult for us to judge, as far as I know. One could let the employees themselves decide how to divide the cake, coupled with lateral assessment procedures. The social dynamics that would be triggered by this are highly complex and can hardly be assessed. One could refrain from monetary incentives and grant other incentives. One thinks here of privileges, of rewarding responsibility through even more responsibility, etc. Does that really make a difference? An objectified, transparent or even democratically conducted assessment of performance criteria (including individual and demonstrated team skills) would be technically obvious, but seems to me hardly feasible in practice due to the complexity of the construct to be assessed in its entirety. Existing approaches in this direction (e.g. in connection with certain collective agreements) already clearly point to the limits and dysfunctionality of this idea. Neither employees nor managers are able to assess relevant criteria in a valid way. If they judge anyway, they feel more than they judge rationally. Tactical action is the result. Not even scientifically trained experts are able to assess constructs such as creativity. Basically, when rewarding high-performing colleagues in a special way, it is important to be sure that others recognize this individual superiority and consider a higher reward to be justified.
Beyond these considerations, there remains the option of doing without both individual and team bonuses. One should not forget that bonuses only ever serve the purpose of motivating people. It is about wanting, not about being able. Money does not make people more effective. Behind bonuses is always the assumption that without the prospect of variable rewards, employees and teams will be less willing to do good work. This assumption is questionable. More decisive could be the question of what a company has to pay in order to attract and retain capable and motivated employees in the first place. We are talking here about the acquisitive function of money. This idea leads to the simple strategy of paying employees only a competitive basic salary. No more and no less.
What remains in the end is the need to make a strategic decision. Strategic decisions are strategic, among other things, because they are difficult to make. The opposite of the preferred option should also make sense. Otherwise, the decision would not be strategic, but at best obvious.