Financial Rewards and the Damage They Do

Managing Director
Business Performance Pty Ltd
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Dan Pink examines the common management notion that financial incentives drive employee performance.

Scientific studies spanning the last forty years show that financial rewards boost performance in only a limited range of circumstances. These are where the task is routine and rule-based and in which there is only a single solution. Where the work involves judgment, creativity or innovation, financial rewards lead to a decrease in performance as people focus on the extrinsic reward instead of broadening their mind to possible solutions. Financial rewards can lead to impaired performance even for jobs that require a modicum of cognitive thinking.

A meta-analysis of 51 studies on pay for performance plans, led by Dr. Bernd Irlenbusch of the London School of Economics, concluded, "We find that financial incentives ... can result in a negative impact on overall performance."

For many jobs in the 21st century, employers will elicit peak performance not by monetary rewards, but by creating jobs with autonomy, mastery and purpose. Find out more by viewing the video of Dan Pink's address at and checking out Business Performance Pty Ltd's employee motivation factors page at

What do you think? How do you use financial rewards in your organization?

About leslieallan

About leslieallan

Leslie Allan is Managing Director of Business Performance Pty Ltd; a management consulting firm specializing in people and process capability. He has been assisting organizations improve their capability for over 20 years. Mr. Allan has contributed in various roles as manager, consultant and trainer within the manufacturing and service industries, both for public and private sector organizations.

Mr. Allan is a prolific writer on business issues, with many journal and web articles to his credit. He is also the author of five books on employee capability, training and change management. Mr. Allan currently serves as Divisional Council Member for the Australian Institute of Training and Development and is a member of the Australian Institute of Management, the Graduate Management Association of Australia and the American Society for Quality.

His company, Business Performance Pty Ltd, started life in 2003 and provides business and management consulting services globally. The company delivers coaching and consulting services in a range of business areas, from small business, leadership and management, strategic planning and organizational change to employee development and career coaching. All services are provided by highly experienced consultants specializing in their area of expertise.

From its website, Business Performance Pty Ltd also proudly supplies a wide selection of business and management software products designed to make managing organizations easier and more effective. Products featured include tools, templates and guides in the areas of training and employee development, project management, organizational change, career planning, and web development. All products can be purchased and downloaded easily from anywhere in the world from the Business Performance Pty Ltd website at


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