Higher pay does NOT lead to better performance

A recent story in The Herald Scotland with the title,
Managers in the NHS ‘should be paid more’ serves to illustrate the confusion over incentives, performance related pay and bonuses.

The story describes a report into the pay of NHS managers in Scotland.

The report also says that performance-related pay-outs have been “largely ineffective” in encouraging staff to achieve higher standards, and adds that “the value of the payments in relation to overall salary levels is too low to have any discernible motivational effect”.

However, the group still calls for the principle of performance-related pay to be kept.

It is nothing to do with the size of the payments. It is the fact that they exist at all that is holding down improvement.

Further down the article Labour health spokesman Jackie Baillie said

“…money is needed on the frontline of NHS Scotland, not in the pay packets of executives.

“This report recognises that the performance-related payments in the NHS do not actually encourage improved performance, but argues that they should be retained. Surely there is a contradiction here.”

There certainly is a contradiction. Extrinsic incentives such as performance related pay and bonuses do not improve performance. In fact, they drive performance down.

In a recent Lean Blog post, Mark Graban pointed out a link to a TED video from, Dan Pink, the author of Drive: The Surprising Truth About What Motivates Us. In the video Pink describes how the performance of trivial, mechanical tasks can be improved by the offer of money, but that even the slightest need for creative or lateral thinking means that extrinsic motivations will actually cause a fall in performance.

In my experience, of all the things that people find the most difficult to let go of is that bonuses don’t improve performance. It is as if they know in their hearts that they do their best work when they are interested in it, when they think they are doing something important and when they have control of the work, but that they still think that others are motivated by financial gain.

I wonder when there will come a point when the confusion will end, the bonuses will stop and the really good work will be set free.

I hope it is soon because otherwise I am going to need to more money to make it bearable.



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