Cash is not the motivator we think it isBankers bonuses do not motivate them to do better. The bankers in receipt of millions, of course, think that the bonuses are incentives. And Governments around the world have bought into this apparent “common sense”. The trouble is, much research on occupational psychology shows us that pay is only a small part of our motivation to do well in a job. And bonuses are an even tinier part. This is backed up by a new study from the University of Nottingham which showed that fining people for poor performance was more motivating than paying them well for good performance.

Strangely, this research is published co-incidentally with a study from the London School of Economics which suggests that bankers really must be paid their bonuses NOW..! If not, any deferment or transfer of cash into shares as a bonus is really demotivating. Interestingly, this research was sponsored by the business consultants PwC who only last week published results from a survey claiming that employees are not motivated by pay alone and that other forms of remuneration need to be considered. Cake and eat it come to mind. One study says that people must be paid in cash, the other from the same company says the actual money isn’t that important. You decide.

One thing that might help you in deciding whether financial bonuses help people improve their performance is the latest report from the Banking Ombudsman which shows that as banker bonuses have risen over the past year, so have customer complaints. So, it seems we pay people to do better, rewarding them with bigger bonuses and they, in turn, reward their customers with worsening relationships. That does not sound too much like a good connection between bonuses and performance.

Yet, the logic of a connection between a “bonus” and some kind of “reward” is seemingly difficult to shift. It is apparently so obvious that if you reward people, they’ll do more of the right things. You can see the evidence of this assumption – and it is indeed an assumption – right across the Internet. Online you find Internet marketers advising you that you should provide rewards and bonuses to your potential customers. People are really turned on and triggered by bonuses, so say the Internet marketing gurus. So, at every twist and turn of the online world you will find websites offering to sell you something accompanied by an ever-lengthening scroll down of bonus after bonus after bonus. The theory is that you will feel so rewarded that you are bound to buy.

But, as the University of Nottingham study demonstrates, punishment is frequently more motivating than reward. Carrot and stick and all that.

Online you can see this in action too. You can find websites which offer to sell you something – but if you do not buy today the price will go up tomorrow if you return then. In other words, if you do not act now you will be punished. In a similar way the “scarcity” phenomenon is also linked to punishment – if you don’t buy today, we may well have sold out and so you will miss out.

If you want to sell more online the trick to is to stop concentrating on finding bonuses, but to focus more on punishment for people who do not buy now. Perhaps that also means it is time for banks to start punishing their employees, rather than rewarding them. It may seem perverse, but it seems it will boost their performance and improve their relationships with their customers. Which bank will blink first?

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