By Steven Pearlstein
Wednesday, March 10, 2010; A15
You would have thought that after the junk-bond scandals of the 1980s, the tech bubble of the 1990s and our recent market meltdown, Wall Street would have finally acknowledged the folly of trying to motivate employees through outsize performance bonuses.
In a desperate effort to justify excessive pay, the big banks now tout their restructuring of compensation programs so that only long-term performance is rewarded. In practice, that means people might actually have to wait three years before cashing in their piles of chips. The size of the piles, however, remains unchanged, along with the prevailing assumption that this is the only way to motivate these very special people.
Now comes Washington writer Daniel Pink with compelling evidence that it ain't necessarily so. His new book, "Drive," reprises decades of often-overlooked research by psychologists and behavioral economists showing the limits of money in motivating employees. It's certainly true that motivated workers need to feel that they are being paid fairly and adequately. Pink's thesis, however, is that beyond that threshold, performance bonuses may actually be counterproductive, particularly when the work requires initiative, judgment and creativity.
This notion, of course, runs counter to traditional economic and management theories, which are based on the assumption that people are rational income maximizers whose behaviors can be altered through monetary carrots and sticks. In real life, however, humans turn out to be more complicated.
Pink cites a variety of controlled experiments in which people were divided into two groups and given the same assignments, challenges or opportunities. The only difference: One group was offered monetary incentives for completing the tasks, and the other was not. Some of the experiments involved solving puzzles, others tested the willingness of citizens to donate blood, and still others involved professional painters creating art. And in all of them, those who were not offered the monetary reward performed better, on average, than those who were.
Pink cites various explanations for why monetary incentives don't work.
In some cases, the rewards cause people's thinking to become unduly literal and fixated -- they fail to think "outside of box," where the most creative solutions are to be found.
In others, the rewards turn an activity that is pleasurable and intellectually satisfying into something that is more like a chore, undermining motivation rather than enhancing it.
In still others, the fixation on monetary awards drives participants to cheat, cut corners, decrease cooperation and take excessive risks.
My favorite of the experiments cited by Pink involved a day-care center that suddenly announced to parents that a fee would be charged if they arrived to pick up their children after the scheduled closing. The fee was meant as a disincentive, but after the change, the center noticed a steady increase in the number of parents showing up late. Researchers found that before the fees, parents were motivated to be punctual primarily out of concern for the teachers and a desire to maintain good relations. But after the fee was imposed, the question for them became more of an economic one: whether it was worth the money to buy the extra time.
The conclusion Pink draws from all this research is that once people achieve a reasonable level of economic comfort and security, they are likely to be less easily motivated by monetary carrots and sticks than they are by more emotional factors. And in modern workplaces, Pink argues that the most powerful emotional motivators are the desire for autonomy, the satisfaction that comes from mastering a skill or a task, and the need to serve some larger social purpose.
If all this sounds a bit like the New Age management philosophy you may have read about in Fast Company magazine (where he was a contributor), or see at work at Google or some Silicon Valley start-up, it is. In many respects, it builds upon Robert Reich's earlier work involving "knowledge workers," Peter Senge's description of "the learning organization," Malcolm Gladwell's insights on top performers and Richard Florida's writing about "the creative class."
But in "Drive," Pink has also done a credible job in demonstrating that this different approach to management and employee motivation has worked in large businesses and small, in high tech and low, in government and nonprofits. It helps to explain why the all-volunteer Wikipedia is now the most consulted reference in the world while Microsoft was forced to close down its Encarta project after spending millions of dollars on it. And this focus on "intrinsic" motivation is certain to become more prevalent as new technology and global competition continue to reduce the number of American workers who are employed to do the kind of routine tasks that are more amenable to monetary incentives.
The irony is that, in many ways, Wall Street might have been the perfect place to test this new approach to employee motivation. Its traders, investment bankers and hedge-fund managers already have plenty of autonomy, and they are constantly asked to master new skills and technologies. In many ways, they potentially have some of the most challenging and creative jobs in the economy.
But what's so clearly missing from their work is any sense of a "higher purpose" other than making more money than last year. Instead, they have been encouraged to take their motivation and their sense of self-worth from their annual bonuses, which in recent years have become nothing less than an addiction. It's an addiction that demands constantly bigger doses just to keep it going. And like most addictions, this one will also be self-destructive.
Steven Pearlstein will host a Web discussion Wednesday at 11 a.m. at washingtonpost.com.