how to wrap up a bonus
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How to wrap up a bonusPeople overemphasise the effect of extrinsic incentives on others
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In this study participants were asked to assess which positioning of a $1,000 bonus for hitting their performance targets at work would appeal to them personally and which would appeal to others
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Well done for hitting your performance targets, you’ve earned yourself a $1,000 bonus. Now you can put that deposit down for that new car you want.
OPTION 1
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Well done for hitting your performance targets, you’ve earned yourself a $1,000 bonus. Now you can put aside some savings for a rainy day.
OPTION 2
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Well done for hitting your performance targets, you’ve earned yourself a $1,000 bonus. You’re really important to this company and we really value your contribution.
OPTION 3
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When asked which positioning of the $1,000 bonus would appeal to them personally, most people say option 3
When asked to rank the options in terms of what would appeal to others, most people rank option 1 as most fulfilling, followed by option 2
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By choosing option 3 as their preferred positioning, people are indicating that they would be most motivated by intrinsic factors – feeling like they’re contributing something positive, they’re good at their job
Choosing option 1 for other people, suggests they think others would be most motivated by more extrinsic factors such as a new car
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Conclusions
1. People have an extrinsic incentives bias – we predict others will be more motivated by extrinsic incentives than they actually are
2. This bias can undermine the effectiveness of bonus schemes in organisations due to misguided positioning
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ReferenceOn the social psychology of agency relationships: lay theories of motivation overemphasis extrinsic reward Organisational Behaviour and Human Decision Processes 78 (1999) 25-62 Chip Heath