How Removing Incentives Can Improve Performance?

Why rewards and incentives often decrease performance?

Parents and managers often have a common trait: they want to encourage – and even nudge – specific or so-called “good” behaviours. And the most common way they go about it is to use rewards.

It follows a simple and deeply ingrained physiological pattern. As we learn that a given behaviour will grant us a reward, our body integrates it. Then it will, even unconsciously, through the release of chemicals such as dopamine, push us to repeat this behaviour to get more of the reward.

So parents may use the tempting “carrot” of additional video game time to motivate their child to earn good grades. Similarly, a sales manager may provide monetary incentives to encourage their team to sign more clients.

Rewards are used to foster behaviours that hopefully lead to beneficial outcomes. But, unfortunately, they don’t always work and increase positive results. Even worse, they can have the opposite effect.

For instance, under British rule, the government faced a daunting problem in Delhi: the proliferation of venomous cobras. To tackle the issue, the authorities offered a bounty for every dead cobra brought to them.

If initially, the plan seemed to work, some cunning individuals saw an opportunity to make a profit and began breeding cobras in captivity. They even built snake farms! Eventually, the British authorities discovered this scheme and shut down their reward system. Without it, farms were abandoned, and the cobras were released into the wild, increasing their population to a higher level than before.

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Likewise, when parents emphasise their child’s grades too much, kids will be more interested in getting good grades – even if it means cheating rather than genuinely learning and comprehending the concepts.  

Similarly, suppose sales representatives are incentivised based solely on the number of products they sell, such as cars or computers. In that case, it can lead to a single-minded focus on maximising sales, even if it means selling at a loss.

An interesting explanation comes from the economist Goodhart, stating:

When a measure becomes a target, it ceases to be a good measure.”

Namely, when we turn a metric (like an assignment grade, the number of products sold) into an objective, it is easy to lose track of the original purpose behind the goal and push people to game the system to reach the target and get the reward.

Even when individuals want to follow the rules, incentives can be counterproductive.

There is a well-known experiment in psychology called the Candle Test. It’s a sort of enigma where you are presented with a box of thumbtacks, a box of matches and a candle and asked how to attach the candle to the wall, light it up and ensure no wax is dropping on the floor.

Typically, individuals attempting the Candle Test will suggest either thumbtacking the candle to the wall or melting the side of the candle with a match and sticking it to the wall. While these are creative solutions, they ultimately fail to address the main issue: preventing wax from dripping onto the floor.

Eventually, people figure out the solution: empty the box of thumbtacks, place the candle in it, and stick the box on the wall with a few thumbtacks. Finding the solution requires us to overcome what is called functional blindness. That means we only see the thumbtacks box as the container for the thumbtacks, not as the candle’s support.

It’s the literal application of “thinking outside the box”. 

In 1962, psychologist and professor at Princeton University Glucksberg submitted two groups to this test. 

He told the first group that their performance would be timed to establish norms and averages. So, they had little or no pressure to perform and no incentive.

For the second group, he told them they would win a financial reward based on how fast they could solve the Candle Test.

Now, who performed the best? The group without incentive or with incentive?

Obviously, I already gave you the answer: the group without incentive. But this answer is often surprising many – especially managers – when I facilitate workshops on how to elevate performance.

When pairing incentives with time pressure, it blindfolds people. It creates tunnel vision, preventing them from using their divergent thinking and ability to connect remote concepts to develop novel ideas.

The catch here with incentives is that they can work wonders for simple and repetitive tasks but are often inefficient (or damaging) when individuals face complex issues requiring problem-solving.

So, we should rethink our approach toward incentives and rewards to improve performance.

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The purpose of incentives is to generate extrinsic motivation, which means motivating individuals to perform a specific behaviour to receive a reward or avoid punishment. However, it rarely provides a sense of fulfilment, joy or even satisfaction from doing the behaviour in itself.

Instead, we should turn inward – looking at intrinsic motivation.

We should aim to align one’s values and aspirations with their work. However, it is way more challenging because we cannot – like with extrinsic motivation – provide a “one-fit-all” kind of incentive. 

We need to learn more about each individual, such as how they perceive themselves, analyse the world around them and even think. 

That’s one of the reasons I’m developing a psychometric test (called the “Thinker Style Assessment”). To increase individuals’ (and their teams’) self-awareness regarding their thinking style and, as a result, identify potential sources of intrinsic motivation, allowing individuals to cultivate a greater sense of fulfilment in their work and elevate their performance.

I hope to be able to share it with you soon. In the meantime, thank you for reading this newsletter. I hope you enjoyed it.  

To your success,

Lison xX

PS: If someone has forwarded this to you, you can subscribe here.

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Whenever you are ready, here are a few ways I can help:

  • If you are about to make an important decision for yourself (or your team) – let me be part of your inner circle and work towards your success, book a call with me to discuss this.
  • Book one of my workshops for your team to elevate energy and performance. More information here.
  • With my first book Act Before You overThink to learn how to make better decisions faster and liberate your mind from the constant chatter that hinders your potential. You can buy it here.
Picture of Lison Mage

Lison Mage

I help clever individuals and teams conquer overthinking and perform at their full potential. Together, we can go from a place of uncertainty and being paralyzed by doubt to gaining clarity on your current situation, where you want to go, and how to get you there!


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