Why external rewards undermine internal motivation

In my last post, I mentioned the issue of lack of trust in institutions. It appears that our world is increasingly running on financial incentives and regulation. Psychologist Barry Schwartz states that this undermines our will to do the right thing.

This week Dr Todd Cameron, GP and practice owner in Victoria, posted an excellent four-minute LinkedIn video about why financial incentives are not as effective as we sometimes think. He mentioned the following issues with financial performance systems:

  • They assume people are lazy
  • They are not supported by scientific evidence
  • They ignore activities that are difficult to measure
  • They reduce the flexibility of organisations
  • They take away resources for system improvement
  • KPIs often work against each other or against other goals, values or purposes
  • KPIs can undermine collaboration.

Research confirms that incentives, big or small, usually backfire. Like punishments, they affect internal motivation and creativity. Social scientist and author Alfie Kohn wrote about the ‘bonus effect’ in Psychology Today:

“When people are promised a monetary reward for doing a task well, the primary outcome is that they get more excited about money. This happens even when they don’t meet the standard for getting paid.”

Kohn states that rewards not only make people lose interest in whatever they had to do to get the reward but incentive systems also reduce the quality of their performance.

I believe Todd is right, money should be the byproduct of doing a great job. Pay is clearly not a motivator to improve performance. Most people get out of bed in the morning because they want to do the right thing – this is usually something we’re good at or passionate about.

Great examples and a work environment that gives people freedom and sets a clear direction at the same time are more powerful than monetary bonuses. Todd recommends that KPI funds should be used to improve systems and collaborative platforms and that targets should not be tied to financial rewards.