Executive pay has risen astronomically over recent years: America’s top CEOs currently earn ten times what they did 30 years ago, according to a 2015 brief by the Economic Policy Institute, and around 300 times more than the average worker. And if that fact on its own isn’t enough to make you feel frustrated, consider this one: The people who take home the biggest paychecks aren’t necessarily the best at what they do. A recent analysis of executive pay in the U.K. by the Chartered Financial Analyst Institute found the relationship between pay and performance to be “negligible at best” — and a wealth of psychology research suggests that there’s little causal relationship, if any, between how much you pay someone and how hard they work.
Let’s back up for a second. It’s important to know that the amount of money in question makes a difference: In 2010, a study published in the Proceedings of the National Academy of Sciences analyzed information from half a million U.S. residents and concluded that once people begin making more than $75,000 a year, the relationship between more money and greater happiness begins to level off. Beyond that point, any bonus — whether it’s a dollar or a million dollars — does relatively little to significantly alter happiness in the long run.
And plenty of studies have found that extra payment, more than simply having no effect, can end up actually reducing the intrinsic motivation we would otherwise feel for an activity that we find interesting and rewarding. In one classic study from the 1970s, for example, psychologist Edward Deci recruited students to volunteer as headline writers for their university’s newspaper, with one group working on Tuesdays and the other on Fridays. As they brainstormed headlines in their weekly meetings, a “supervisor” secretly recorded the time it took them to come up with each one. After a few weeks, members of the Tuesday group were told the paper had found the budget to pay them 50 cents a headline, but that they shouldn’t mention anything to the Friday group, since there wasn’t enough money to go around.
So what happened to their performance once money was involved? In the beginning, both groups took an average of 22 minutes to write a headline. Over time, the Friday workers — the ones who weren’t paid — got faster and faster, and by the end of the experiment they had cut their time nearly in half. The workers in the Tuesday group, on the other hand, never saw any significant improvement: Even though it was in their interest to write as many headlines as they could in the time allotted, they still took at least 20 minutes per headline up until the end. What’s more, most of them stopped coming to meetings sometime over the course of the study, while most of the unpaid Tuesday group kept turning up reliably every week to work for free.
The findings laid the groundwork for a wave of research into the phenomenon that became known as the “overjustification effect,” or the idea that an external reward will decrease a person’s internal drive to do a job well. A couple of years after Deci’s study, psychologists Mark Lepper, David Greene, and Richard Nisbett conducted a similar experiment, this time with preschool children as subjects and art projects as the task. The researchers told some of the children that they would get ribbons and certificates in exchange for their drawings, and then watched the tiny artists work from behind a one-way mirror; those who were promised prizes, they observed, spent significantly less time on their pictures than the kids who never knew about any rewards. Three independent judges also rated the artwork that came out of the experiment, and overall, the drawings of the rewarded toddlers were found to be worse in quality than those of the unrewarded toddlers.
Decades of experimental research have uncovered similar results in children and adults alike, but there’s a caveat. In a 1980 study on the subject, psychologists found that while rewards reduce motivation when they don’t depend on a person’s ability, they lead to increased motivation when they’re based on skill. In other words, paying people extra for their abilities may inspire them to work harder, but paying them for the hard work itself can actually be detrimental.
In 2010, a team of researchers, Kou Murayama, Madoka Matsumoto, Keise Izuma, and Kenji Matsumoto, added some more nuance to this idea, examining how performance-based pay that doesn’t require any specific skill can end up undermining motivation. The researchers had students play a game in which they had to try to stop a stopwatch at exactly five seconds. When they observed participants in action through an fMRI scanner, they discovered that the reward networks in the students’ brains activated when they were successful. In the first part of the experiment, some of the students were paid only if they could stop the clock on time, while the others were paid simply for participating; in the next part of the experiment, no one was paid. In this second round, those who had previously been rewarded based on performance ended up playing the game far less, and the activity in their brains’ reward centers fell dramatically. The game really did stop being fun once they were no longer being paid to win.
Reading all of this with the gift of hindsight, such a result may sound obvious. But in a follow-up study published by Murayama earlier this year, he described his earlier experiment to adults and asked them how they would expect people to behave — and most of them wrongly predicted that performance-based rewards would actually increase people’s intrinsic motivation to keep playing the game after they stopped being paid, rather than decrease it.
Ultimately, this all presents something of a catch-22: Getting paid to do what you love may mean that over time, you grow to love it a little less. And even if sky-high pay doesn’t do much to increase either motivation or overall happiness, there are still emotional and motivational consequences for taking that money away.
If this all sounds rather bleak, it’s worth remembering that many of these studies were conducted in lab settings pretty detached from reality, meaning they may not necessarily reflect the way workers will act in response to monetary rewards. To better understand that, we’ll need to see research conducted with real jobs and real sums of real money in the real world — a difficult thing to pull off, because most people, unsurprisingly, are rather unwilling to let researchers manipulate their pay as part of a controlled experiment.
If there are any CEOs out there who are prepared to put their company’s payroll on the line for the good of science, though, the resulting experiment could tell us an awful lot about ourselves, and even potentially change the way companies operate. Perhaps businesses would realize that they could substantially increase productivity by turning their reward systems upside-down: Bonuses for low-level employees, especially those who have little intrinsic interest in their jobs, would likely have a much greater impact on a company’s productivity than concentrating that bonus money at the upper echelons of the corporate hierarchy, where people are likely more invested in their roles. And at the top of the food chain, it could well emerge that alternative forms of awards and recognition are actually more rewarding than yet another million-dollar bonus.
