Why a Bonus System Can Backfire

Backfire

Source: Dall.e

Warnings against using bonus systems to motivate performance abound. From corporate scandals caused by incentives to reports about how the financial uncertainty they cause can impact mental health, the question becomes whether they should be used at all.

With my research collaborators in Canada and Norway, we investigated whether and why one specific bonus system used at a videogame company generated bad behaviors. Specifically, we looked at whether bonuses could make game developers disconnect from their moral standards and behave unethically—by lying, turning a blind eye to questionable behaviors, cheating, taking the credit for someone else’s performance, displacing blame, or cutting corners.

Bonuses were calculated as a percentage of profits generated by games on the market that was distributed to game development teams. Individual bonus calculations included weights based on yearly individual performance appraisals and job levels. Overall, this is quite a typical corporate bonus system; game developers could reach yearly amounts up to $50,000! But here is the catch: A large portion of developers were working on games that had not hit the market yet, which meant they would only achieve a bonus once the game launched, which could take several years. Therefore, for a portion of this workforce, their bonus was uncertain.

Our research team combined HR records of past bonuses received and future anticipated bonuses through a large employee survey of 1,024 game developers and assessed whether they were more motivated by the reward or because they found their work to be interesting and enjoyable—or whether the bonus made them lose their motivation. We also asked them about whether they engaged in morally disconnected behaviors.

Here is what we found:

1. Past rewards did not “shape” future behavior. Contrary to what reinforcement theorists might predict, even sizable payouts from the last cycle weren’t associated with how motivated people felt now or whether they engaged in morally disconnected behaviors.
2. Certainty mattered a lot. Developers working on new games not yet on the market felt demotivated, and that led them to engage in more morally disconnected behaviors. We could say that the bonus system backfired in their case.
3. Expected future bonus size showed a mixed picture. Bigger expected bonuses were linked to lower “just-for-the-money” motivation and higher intrinsic motivation—the opposite of the usual fear that money crowds out interest. At the same time, larger expected bonuses were directly associated with more corner-cutting and less moral disengagement. In short: Bigger dangled carrots may tempt some people to take shortcuts even while they feel genuinely engaged with the work.
4. Overall effects were small. The bonus features explained only a modest share of differences in motivation (about 1–3%) and deviant behaviors (8–12%). In this real-world setting, bonuses were not the motivational powerhouse many assume.

Taken together, the results of our study suggest that perhaps designing complex and expensive bonus systems is not entirely worth it. These findings concur with previous findings showing it may be better to invest in designing good work environments than investing in complex bonus systems.

The second takeaway is that bonus systems based on criteria employees do not control completely (such as when a game will launch or market conditions) might backfire by making employees engage in unwanted behaviors. Ambiguity and weak performance links sap purpose and can nudge bad behavior. Some may argue that this bonus system was badly designed but you won’t find many that are designed with perfect employee control.

If you are a manager or policy-maker, the message is sobering: Elaborate, expensive bonus systems may not buy you much genuine motivation—and in some circumstances they can raise the odds of rule-bending. Instead, make sure the work context fulfills employees’ psychological needs for autonomy, competence, and belonging to ensure employees are motivated by meaning and enjoyment at work.