Everything in employment devolves to motivation. Terminations result from a failure to motivate; so too strikes, turnover, and virtually every other issue facing employment lawyers and HR managers. Theories abound in the business literature on employee motivation including classics like McGregor’s “theory X” and “theory Y” or Ouchi’s “theory Z”.

With behavioral economics, there is now proof rather than mere theory, test results rather than anecdotes. Dr. Dan Ariely’s new book – Payoff: The Hidden Logic That Shapes Our Motivations – is barely 100 pages long and easy reading. You need to promise yourself that you will read this book.

As veterans of the working world, we know what works from experience. Wrong. Ariely and his colleagues not only tested money versus other rewards in lab settings but then reversed those experiments by asking test participants to be “consultants” and predict the effect of various motivations. The results were abysmally wrong: the “consultants” misjudged (pp. 31-32).

This is critical because faith in an untested theory is what businesses (and the lawyers and consultants who offer advice to those businesses) routinely do: “Understanding predictions is important because we often face situations that force us to make decisions based on our intuition, without the ability to first test our hunches.”

Testing shows the fallacies of intuition.

Fn. 13 cites a study that “when the bonus size becomes very large, performance decreased dramatically.” Sports announcers would say that the players choked; Ariely is more polite and comments only that “[t]his counterintuitive effect stemmed from the stress and fear of possibly not getting the bonus.”

Ariely further challenges views on compensation with his own illustration of how he gamed the compensation point system at MIT (pp. 78-79). How so? “When organizations attempt to create their compensation schemes, the first mistake…is to overemphasize the countable dimension. The second mistake…is to treat the uncountable dimension as if it were easily countable.”

He also indicts the utility of employment contracts: “Speaking of ruining trust and goodwill, let’s take a look at legal contracts.” This is anecdotal rather than reciting experiments in behavioral economics (but such experiments will likely validate his hypothesis) because contracts “create rules and lists of punishments…approaches [that] only work in the short term…”

But, now to the big finish. Lab experiments are all well and good but not the real world. For practical men and women concerned with motivation in the workplace (and casual readers who are skeptics), Ariely offers the Intel experiment. His team got the assignment to test alternative motivations at a semiconductor manufacturing facility.

This plant operated on a 4 day week with 10 hour shifts, followed by 4 days off. Intel had been using a monetary bonus on day 1 of each 4 day cycle on the assumption “that after four days off, the chip makers needed an extra boost to get their productivity mojo back.” Ariely’s team was given permission to design and test alternatives, which resulted in the following experiment:

  • Group 1 continued the status quo. Workers on the first day of their cycle received a message from the boss as follows: “Good morning. If you reach or exceed X chips today, you will receive $30 in cash. Good luck.”
  • Group 2 was the control group. Workers received no message and no incentives.
  • Group 3 workers were offered a pizza incentive message: “Good morning. If you reach or exceed X chips today, you will receive a voucher for a free pizza at the end of this shift. Good luck.”
  • Group 4 got offered neither money nor pizza. Instead, these workers were told on arrival everyone who reached or exceeded X chips today would get text message of congratulations from the plant manager.

You should write down your projected result. But, please include not only which of these groups had the highest production on day 1 of the cycle but also what you think would happen to their production on days 2, 3, and 4. Then go read this book to be entertained and challenged on the conventional wisdom of employee motivation.

PS: If you are intrigued but impatient, you can watch Dr. Ariely’s lecture on what he covers in chapters 1 and 2 here. If you are desperate to check your answer on the Intel study which comprises chapter 3, it is published in the Journal of Management and is available here.