Monday, October 12, 2009

Think pay for performance works? Think again...

This TED talk alludes to a number of social experiments where adding monetary incentive has significantly decreased the productivity of creative work.

Extremely enlightening, a must watch for every manager - and yet another proof that the claim that the Wall Streeters need to be paid exorbitant amounts of money to retain "the best and the brightest" is just a crapload of bull.


nathan3700 said...

I too think that the pressure of earning a big reward can dampen short term creativity. It makes sense that when somebody turns up the heat on you, you're fight-or-flight response will focus on mechanical efficiency. I notice this in karate. Once you're in the thick of a sparring match, you can't think straight anymore. You have to rely on muscle memory.

But it was the enticement of a reward that leads people to invest in the "prework". (or to go to karate 3 times a week) Yes, I think that the most creative periods in life are when you are relatively free of distraction and when you aren't worrying about money. But a person is more likely to prepare themselves for those periods when they see a reward.
Also, as Edison said, invention is 1% creativity and 99% sweat. You can have all the creative ideas you want but if you can't bring them to market, who cares. Hence, pay is a motivator.

Pay is the motivator for setting a certain course in life, and staying on that course. But I do agree that once on course, pay has little to do with creativity.

The next time one of your employees quits to find greener pastures, ask him if pay was a factor. I know it was a factor for me.

I do think, though, that there is a point of diminishing rewards with pay. Exorbitant CEO pay doesn't help share holders.

Unknown said...

This topic came up a few times when I was getting my mba, and academia pretty much said higher earnings does not guarantee performance raise, in many cases the result was the opposite.But then you look at GS:"In the last nine months, the bank set aside about $16.7 billion for compensation — on track to pay each of its 31,700 employees close to $700,000 this year.” (Source: and you see GS performance, which was fantastic in my opinion.

Sergey, unrelated -related question to you as a manager: what office space dev should get, so their performance would be optimal (shared office/their own office/cubicles/open spaces) ?

Sergey Solyanik said...

You forget that the reason GS has this fantastic performance is because US government bailed it out. Even though in theory the bailout went to other organization, in practice GS benefited tremendously, because instead of going bankrupt, the organizations that insured GS positions - like AIG - made good on their obligations. If not for that, GS would be out of business today.

I have worked in both settings - cubicles (Bentley Systems, Google) and offices (Microsoft).

Each has pluses and minuses. It is hard to say with any level of certainty that one or the other configuration is better in terms of employee performance.

Offices allow for greater concentration, and in a cubicle environment it is easier for people to work together. I think net is the same. I would personally not care whether it is offices or not.

Eric Lee Green said...

I am paid a fair amount of dough to keep me from leaving because I actually do have skills that would be difficult to replace without spending even more money, unlike these "masters of the universe" whose only skill is BS'ing people into giving them bonuses as they destroy the economy. But when I look for new opportunities I'm not looking at money. I'm looking at whether it's something I would enjoy doing. Pay is not my motivator. Doing what I enjoy is my motivator. The fact that people are willing to pay me to do that... well. That's pretty cool, isn't it?

I feel sorry for those people who hate their lives and what they are doing with it so much that only money keeps them doing it. Those people ought to take a good hard look at themselves and what they are doing with their lives, and go do something they like, rather than be all about money. In the end, money is just green toilet paper with pictures of dead people on it, and both a rich man and a poor man are equally dead at the end. Nobody ever died saying, "I should have spent more time at the office making money"...