When Money is an Object, How to Motivate Your Workers

If a company wants to get more out of its workforce, a pay bump isn't a bad incentive, especially if it's tied to performance milestones. If we're being realistic, however, most companies aren't able to hand out motivational raises too often. That would be true even without an economy struggling during the global COVID-19 pandemic.

With those constraints, companies might try any number of things to motivate their employees. Think about the holiday parties, sales competitions, and matching dollars for charitable causes that have become part of the culture at many workplaces.

So which of these activities, if any, will compel employees to work a little harder? We tested them by offering participants incentives for playing an online game in which they simply press two computer keys as fast as possible. We offered a lump sum, like a salary, for simply doing the job and used that as a baseline.

Spoiler alert: By far, the best incentive was money. Players offered an extra penny per 100 points they scored increased their performances. As the “salary” increased, so did their productivity, by as much as 40 percent. Bonuses also worked well, with participants often reaching milestones—1,000 points or so—to obtain a lump-sum payout with similarly increased effort. Simply offering a no-strings-attached bonus—no matter how the participants performed—led to no noticeable increase in productivity.

Avoiding losses

Participants did work harder to avoid losses. Telling people they'll receive a bonus if they reach a certain milestone increased effort as much as 40 percent. Telling them they could lose that bonus if they didn't hit a certain mark boosted their productivity by slightly more. Workers might also be enticed by donations to charities. We offered to make donations to the Red Cross if the participant reached a certain number of points. Effort increased about 25 percent no matter the amount we offered to donate, suggesting that it's not the amount that enticed workers but the act of donating anything at all.

When offering monetary incentives, we found it's best to make good quickly. When we offered bonuses but said it would take two to four weeks to receive them, productivity dropped as the length of time increased.

If money is not an option at all, there were psychological motivators that modestly boosted production.

Making the game a competition by offering to let the participants see a leaderboard at the end of the task resulted in about a 15 percent boost. Telling them that most other competitors reached a certain score ticked that up a little.

Finally, some workers responded to a simple appeal. After telling participants their pay wouldn't be affected by effort but that we simply wanted them to do their best so we could see how many points they could score, they did about 14 percent better than the baseline.

In this economic climate, even a little bit of increased productivity can be the thing that keeps the doors open. Some modest resources might be able to get your company there. Even asking nicely, we've shown, can make a difference.

Devin G. Pope is professor of behavioral science and economics at Chicago Booth.

A version of this column appeared as part of the Chicago Booth Insights series, a partnership with Crain's Chicago Business, in which Booth faculty offer advice for small businesses and entrepreneurs on the basis of their research.