Opinion: Bonuses reduce employee productivity. Huh?

Do you hand out bonuses, or strive to earn one yourself? This sort of motivation could be hindering your planning firm’s success. Managing director and CEO of MarkTwo Consulting, Mark Oliver, explains why:

Intrinsic Motivation: American psychologist Edward Deci observed that tangible rewards inevitably reduce the intrinsic motivation of individuals. He stated, “The facts are absolutely clear, there is no question that in virtually all circumstances in which people are doing things in order to get rewards, external tangible rewards undermine intrinsic motivation”. (There is one exception to this observation. This involves jobs where there is little intrinsic motivation, such as simple repetitive manual tasks, and in that case, rewards do tend to increase output or productivity.)

A good model on human motivation is so helpful because it enables you to predict better what the actual outcomes will be. The Universal Hierarchy of Motivation (UHM) provides the basis for a complete understanding of human motivation so that you can accurately predict what behaviours will result from system or structural changes.

The UHM helps you to understand human motivation comprehensively and so make the most accurate predictions on what people’s motivation (and hence resulting behaviour) will be, given a set of system or structural changes. The higher UHM level we are at then the more impact we have on our own and others’ lives. The UHM levels are shown in the table below correlated with the relevant intrinsic motivator and extrinsic behaviour.

The UHM theory explains the observations that paid bonuses at work are poor motivators because they only move employees’ motivation to the level of pleasure, which renders them less able to deal with greater and more complex challenges which are best dealt with at a higher level.