It takes more than money to make the world go round

In an earlier post on performance pay I spoke of the distortions that could arise with performance pay systems. I suggested that money itself was not a good motivator, that a focus on money could introduce sometimes unexpected behavioural distortions.

Interesting article by Ross Gittins in the Sydney Morning Herald (10 September 2007) making the same point in a different way.

Ross spoke of the pre-school that had a problem with parents arriving late to pick up their kids, forcing staff to pay late. The school introduced a charge for late parents.

The school thought of it as a fine, a way of encouraging parents to be on time. In fact, the problem got worse because parents thought of it as a fee in return for being late.

As Ross said, introducing a monetary payment changed what had been a moral issue – doing the right thing by day care workers – into a commercial transaction. People no longer felt guilty about arriving late because they were paying for the privilege.

His core conclusion was that where intrinsic motivation is important, introducing monetary rewards can crowd out that intrinsic motivation, making things worse rather than better.

This is a precise statement of one the problems that can arise with performance based pay. Exactly the same problem can arise with performance agreements.