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The Irrelevance of the Carrot and the Stick

 

When was the last time anyone took a good hard look at what really motivates us in our work?

 

If you ask the average manager, they would say we pay bonuses for high performance (The higher performance the more money they offer) and punish poor performance. It’s a methodology that has been around since the industrial age and that is where it should have stayed, left behind in an era where gut feel was put in place of scientific evidence when it comes to employee management.

 

If you ask my opinion we should apply the scientific method to our employee management and see what the real results are from repeatable testing and measuring. You see our motives and what motivates us as human beings to get up in the morning are unbelievably interesting, and they are not what most managers have been trained to think they are!


Thankfully some smart people in MIT (Massachusetts Institute of Technology), University of Chicago and Carnegie Mellon University have done just this and the results may surprise you!

 

The real interesting science has shown that humans are not able to be endlessly, predictably manipulated as managers have thought for the last century. It has been taught and is still being taught in universities today that if you reward someone you get more of the behaviour you want and if you punish someone you get less of the behaviour you don't want. These two guiding principles of management have held back and negatively impacted organizations in tremendous ways you cannot even imagine right now!

 

What MIT did was they took a large group of students and set them a range of challenges. Things like memorising strings of digits, solving problems and physical tasks, then to incentivise their performance they gave them 3 levels of reward, so if you did ok you got tier 1, if you did pretty good you got tier 2 and if you did an excellent job you got the highest third tier of reward.  With each reward tier the cash bonus got bigger!


Essentially this is the typical model 99% of organisations follow, they significantly reward the top performers and ignore the normal performers.

 

What happens now? They do the test, have the incentives and this is what they found out:

 

1. So long as the task involved only mechanical skill – Tasks that do not require much thought whatsoever the bonuses worked as expected, everyone performed to a high standard. Higher pay = better performance. Like if I said to you do 30 pressups and I'll give you $10, 40 pressups and its $20 and 50 pressups you get $50. You would strive for the most and many would acheive it.

 

2. However Once they task called for even rudimentary cognitive skill (Brain work) a larger reward led to poorer performance. This of course then does make you wonder about sales people and paying them on performance (commission). I guess that comes down to the question do sales people actually think? I’ll let you decide that :).


What does that mean? It means that the science has proven beyond all reasonable doubt that pay for performance on anything but mechanical skill tasks actually does not work. (Sorry CEO's there is no need to pay you a big bonus to get you to do the work you do, that ought to save a few mil) This of course defies the laws of behavioural physics! That is Newtons first law of inertia and human behaviour, a law that states that it takes a force to make you change direction, speed up or stop and that force being typically applied in the form of a carrot or a stick (or both).


Replicating this exact same experiment all over the world, especially in places where say even $50 is a large sum of money such as Mandurai, Rural India. There they were able to scale in such a way that small rewards were 2 weeks salary,  medium performance were 1 months salary and high performance was 2 months salary. Those are real good incentives! And this time they gave each group the same task but varied the reward amount, - same tasks, different rewards for completing it.


What happened? – Well those in the low – medium reward categories for cognitive tasks performed exactly the same, there was no difference between them. Then those who were offered the huge reward – 2 months salary, they completely bombed out, they did far worse than even those offered the lowest reward. Higher incentives led to worse performance every single time. What’s interesting is that this is not an anomaly, this has been replicated over and over again by economists, sociologists, and psychiatrists. The science is as sure as you can get within a framework that is not mathematics, because you only get absolute truth from mathematics. In all other science you only get evidence pointers!


It’s a fact, money is a motivator at work, but not in the way that people think it is. If you don’t pay people enough, they won’t be motivated, they won’t want to work for you! The best use of money as a motivator is quite simple, pay people enough to take the issue of money off the table. This way they are not thinking about the money, they are thinking about the work.


Once you do this, there are 3 factors that the science shows lead to better performance, not to mention personal satisfaction:

 

1. Autonomy
2. Mastery
3. Transcendent Purpose

 

Autonomy is our desire to be self directed, this is exactly where management interfere with this basic human desire, great if you want compliance, poor and misused if you want high performance and engagement, which is exactly what you want in the workplace today self directed is best. One fantastic example of autonomy is Atlassian, an Australian software company who once a quarter they have a 24 hour session and they say to their developers you can work on anything you want! You can work on it the way you want, with whoever you want, all we ask is that you show these results to the company at the end of it. It’s a fun meeting, situation, beer, cake, pizza and they get it on! It turns out, that one day of whole, undiluted autonomy has led to a whole array of software fixes, and new products that otherwise would have never emerged! Now this is not an if-then incentive, this is not what managers in general put forward today, this is just one day of freedom, no innovation bonus, no pay for performance, just autonomy. All they say is, you probably want to do something interesting, let me get out of your way.


Mastery is our desire to be good at something, that is why people attend toastmasters, that is why we play instruments in the weekend, that is why we engage in personal study that makes us absolutely no money whatsoever. (such as in my case I enjoy studying theology, history, biology, physics and other sciences when the time permits.) You find me someone who does not want to be good at what they do and you have found me a lazy person who will soon find themselves unable to afford to feed themselves. Mastery is fun and it is satisfying.


Let’s say for example I went to an economics professor 20 years ago and said, sir, or ma’am I have got this fantastic idea, I’m going to build a business, I’m going to start with virtually no startup capital and experts from all around the world are going to volunteer their time for free (and these experts already have full time jobs), then they are going to give the product away for free. I would have been laughed out of their office, but this is exactly how Linux was built and it runs in 90% of fortune 500 companies, this is how Apache was built and it runs 70% of web servers, You’ve got Wikipedia, all on free volunteered time! Why? Because mastery is important to us, it’s getting that challenge done and completed that shows we are the master of our arts that makes us stay up late, it’s perfecting our art that drives us to perform better at what we do. It’s challenge and mastery along with making a contribution, that’s it.


Thirdly a transcendent purpose, it makes coming to work better, and it makes it easier to recruit and hold onto talent. When profit becomes disconnected from Purpose that is when profit becomes paramount, that is when bad things happen, poor service sets in, inferior or shoddy products get created, and much else. Jesus Christ put it this way, what does it profit a man to gain the whole world and lose his soul. Put in business terms you could say what does it profit a company to gain the whole world only to end up bankrupt because of it. Companies who’s goal is money will never make it.
Transcendent purposes are set out by the business in a manner that give people a reason to get up and come to work in the morning. The founder of google said “I want a Googol sites in my search engine (That’s 10 to the power of 100)”, Steve Jobs said “I want to make a dent in the universe”  That’s the kind of thing that might make you want to get up out of bed and go to work in the mornings.


What can we conclude from all of this?

 

The science shows, beyond all reasonable doubt that it is self directed mastery within a transcendent purpose that brings out the best in people. NOT bonuses. Pay people enough that they are no longer thinking about the money, allow them self direction, give them the opportunity to become masters in their art and have an overarching transcendent purpose for them to work towards. This is how successful businesses of the future will be built, this is how they will be run and it won’t take long for the dinosaurs who won’t change the way they do business to be left in the dust.


Thanks to RSA thinktank for inspiration on this blog.

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