The truth about bonuses

New research from economists at the University of Nottingham suggests that incentive payments in the form of cash bonuses don’t work.

Experts in behavioural economics carried out a series of experiments to examine the effect of bonuses and fines on workers’ performance. The idea was to mirror not just a workplace scenario but other real-life situations such as tax inspections and even speed-limit compliance.

The study, involving more than 100 volunteers and led by Dr Daniele Nosenzo, was carried out at the Centre for Decision Research and Experimental Economics at Nottingham’s School of Economics. Subjects were assigned the roles of employers or workers and randomly paired over a number of rounds of an “inspection game”.

In each round a worker had to decide whether to supply “high” or “low” effort, while at the same time the employer chose whether to “inspect” the worker or not. In some treatments the worker received a bonus for supplying high effort when inspected, while in others he was fined for low effort.

Researchers found that workers are more motivated to work hard by the threat of financial penalties than by the prospect of bonuses.

Further details about the research are available from the University of Nottingham.

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