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Does money really motivate people?

Pile of dollar bills (Copyright: Thinkstock)

(Copyright: Thinkstock)

A growing body of evidence suggests that increasing financial rewards may not boost performance, as is often claimed when justifying the rewards given to bankers and business executives.

Is a bank chief worth 1,000 nurses? That provocative question arose earlier this year when it was announced that Bob Diamond, the chief executive of Barclays Bank, received a total income of around £25 million ($40m). That's enough to pay for an extra 1,019 nurses, 859 social workers or 2,165 care workers, according to figures produced by a leading trade union. The bumper pay packet came despite the bank's pre-tax profits falling 3% to £5.9 billion ($9.5bn).

Since the start of the ongoing financial crisis five years ago, politicians have been keen to bash bankers, rhetorically at least. President Barack Obama, for example, called excessive bonuses "obscene". While opponents of giant rewards to bankers and business executives tend to argue they are unfair on ethical grounds, those in favour usually shift the debate away from morality and towards more pragmatic ground, arguing they are necessary to attract, retain and incentivise talented staff.

While the behavioural sciences are of limited help on the ethics involved, the claim that multi-million pound pay packages boost performance is a separate and testable assertion. Performance-related pay has become so deeply ingrained that few question it. Most of us assume that offering people bigger financial rewards means people try harder. However a growing body of research in the fields of psychology and economics, and more recently neuroscience, paints a more complex picture of the relationship between money, motivation and performance.

Pioneering work in the field was carried out in the early 1970s by Edward Deci, a psychologist at Rochester University in New York. He found that students offered cash prizes to solve puzzles were less likely to continue working on them after payments had been made, compared to students who were offered no money. Deci's work helped clarify the relationship between intrinsic and extrinsic motivation - doing things because you like doing them in their own right or doing them because you want a reward that has been offered.

“People have three psychological needs – to feel autonomous, to feel competent and to feel related to others,” he says. Payment, according to Deci’s research, does not fulfill these needs. Over-emphasis on financial reward undermines autonomy and therefore intrinsic motivation, he says. “This [negative effect of money on motivation] matters hugely. You need high quality performance from bankers. You need thinkers, problem solvers, people who can be creative and using money to motivate them will not get you that.”

Perhaps more surprisingly some economists also question how good money is as a motivator. Dan Ariely, of Duke University, North Carolina, in the US, provides a compelling example. “If I ask you to help me change a tire on my car you might be willing to help, but if I offer you a dollar for this you don’t say to yourself ‘gee I get to help Dan and I get a dollar’. In contrast you say: ‘It’s a dollar, I don’t work for a dollar’ and you’re less interested in doing this.” In other words the introduction of financial incentives into a relationship by one party can undermine another's motivation to perform a task.

But maybe the small sums involved in Ariely’s example and Deci’s experiments undermine their application to real-world international business and finance. To address this, Ariely and colleagues, recruited villagers in India to play games testing memory, creativity and motor skills, offering three different groups four, 40 or 400 rupees per game for scoring highly. The maximum reward was equivalent to the amount spent by the average person living in rural India in five months. They found that those offered the highest incentives performed worst, earning an average of 20% of the maximum possible, compared to around 36% for those in the low and medium reward groups. “Our results challenge the assumption that an increase in motivation would necessarily lead to improvements in performance,” says Ariely.

It also illustrates the complexity of teasing apart motivation. He believes the giant potential rewards on offer to some of his Indian subjects undermined their ability to perform by making them overly focused or mentally aroused. This idea that there is an optimal level of mental arousal that stimulates good performance, which when either lowered or raised undermines our abilities, was first proposed by US psychologists a century ago.

This concept of failure to perform under pressure, or "choking", is well known in sport. A famous example saw French golfer Jean Van de Velde needing to sink the ball in six shots on the last hole of the final round of the 1999 British Open to win. Having done so in just three shots in the two previous rounds, he crumbled under pressure and took seven shots, before losing the resulting play off.

Jump for cash

A key problem that has faced those in this field in the past has been the difficulty of measuring motivation using psychological tests and questionnaires. But the increasing use of brain imaging technologies in neuroscience has provided a new and more direct method to study thoughts and feelings. These techniques are now being adopted to tease apart the different aspects of motivation.

Dean Mobbs, of the University of Cambridge, UK, and colleagues, for example, have used brain scanning to show how choking is manifested in the brain. In his study participants played a computer game in which they had to race against the clock to catch a prey in a simple, two-dimensional maze, while their brains were scanned by an MRI machine. They were told they would win either 50p or £5 if they succeeded within the time limit.

The results, published in the journal Psychological Sciences in 2009, showed performance was worse when the larger bonus was on offer and that this was associated with increased activity in brain regions involved in motivation. Mobbs suggests that excessive activity in areas of the brain that deal with motivation can come to dominate our decision-making abilities, leading us to make more mistakes, or "choke on the money".

In his experiments in India, Ariely expected, based on previous work, that large rewards would undermine performance in tests of motor skills and creativity but not those involving memory. In fact they led to worse results in all three. He believes this was down to the huge size of the payments causing his participants to choke. So to try to work out what types of tasks could be motivated by money he set up a second experiment in which he offered two groups of American students rewards of $15 to $30, or $150 to $300, if they did well in tasks involving maths or repetitive key-pressing. In the key-pressing task participants earned an average of 78% of maximum potential earnings when offered the larger incentives versus 40% for those receiving the smaller sums. In contrast, in the maths tests, the larger payments undermined performance, with recipients earning only 43% of their maximum potential earnings, compared to 63% when offered lower financial rewards.

“If I gave you a bigger bonus to jump you would jump more times," says Ariely. "You have very good control over your legs and if I give you more money you will transmit more power to them and therefore you will be more successful. We don’t have the same control over memory, creativity and concentration. You can’t will yourself into a higher state of concentration and creativity. It’s actually counterproductive and hinders performance strongly.” Anyone that has tried to force themselves to concentrate can probably relate to those findings. But there are also more subtle effects of motivation that can be teased apart using these new techniques.

Brain test

Psychologist Kou Murayama, at University of California, Los Angeles, originally studied motivation in relation to learning and education. During a conversation with neuroscientist Kenji Matsumoto, of Tamagawa University in Tokyo, he realised their fields viewed motivation very differently. “I was struck by the fact that in neuroscience motivation is assumed to be a single, unitary concept and just a function of external reward,” says Murayama.

He and Matsumoto set up a study in which they asked volunteers to play a simple game involving pressing a button every time a stopwatch on a computer screen reached five seconds. The goal was to do so within one-twentieth of a second. Participants in one group received a small financial reward each time they achieved this while those in another did not. The tests were carried out in a magnetic resonance imaging (MRI) scanner. Those offered financial rewards experienced higher levels of activation of parts of the brain associated with motivation. “Extrinsic incentives are actually useful to temporarily enhance motivation,” says Murayama.

The participants then had a short break outside the scanner in which they could choose to either read some unrelated leaflets or continue playing the game. They were unaware that the choice they made was being monitored. Then they played the stopwatch game again, and this time both groups received a fixed sum of money for taking part, with no performance-related payments. Intriguingly, in those who received cash prizes the first time around, less activity was observed in the brain areas associated with motivation the second time they played the game. Moreover those that had the greatest decrease in activity were the least likely to have voluntarily practiced the game during their break outside the MRI machine.

Murayama and Matsumoto’s findings, published in the journal Proceedings of the National Academy of Sciences in 2010, suggest that money can motivate people to work while simultaneously reducing their intrinsic motivation. “We do not think we should get rid of all the extrinsic rewards from educational and work settings," says Murayama. "Rather, we may need a more balanced view between extrinsic, short-lived monetary rewards and intrinsic motivation. This would lead to another interesting possibility that extrinsic motivation may be transformed to intrinsic motivation under certain circumstances.”

Psychologists, economists and neuroscientists are slowly but surely painting an ever more detailed picture of the complex relationships between our internal drives and external incentives such as money. It is so far an incomplete picture, they acknowledge. “Neuroeconomics has in principle the possibility to tell us a lot, but we are not there yet,” says Ariely. Murayama stresses the need to test ideas outside of the brain scanner in situations that more closely mimic our real life work and bonus cultures. “It is true that it [the detrimental effect of money on motivation] exists in experimental settings, but we need to show that it does indeed have great impact in practice.” Murayama and colleagues are now starting to use brain scanning to investigate how factors other than money, such as our desire to beat our own targets or to do better than others, might also affect brain networks associated with motivation and ultimately performance.

None of these researchers are proposing that Bob Diamond and the rest of us would perform better without financial rewards. Money can and does motivate people to work, yet large performance-related bonuses can reduce our personal interest in tasks and potentially undermine performance. While some progressive employers have started to take note of some of these insights being generated by the behavioural sciences, a larger number could probably benefit from a deeper understanding of employee motivation in order to re-design working patterns and payment schemes in ways that could improve both job satisfaction and productivity.

“I am not suggesting that they [people] should not be well paid for doing their work," says Deci. "I am saying we need to get out of the place of thinking that the way to motivate is to give them incentives for specific tasks. We need to think about how to make the workplace one in which people will get their needs satisfied and in which they will perform well.”