Financial incentives also work for creative teams, the economist says

Many companies pay bonuses at the end of January. Economist David Schindler examines whether bonuses work in modern work environments where teams must work together to solve complex problems. His main conclusion is that bonuses are more effective and improve performance in this system by facilitating the appearance of leadership.

Teamwork involving analytical thinking has taken off strongly over the last few decades. Until the 1970s, most workers performed manual and repetitive routine tasks without the need for coordination in teams. Today, work is often organized in teams, where team members must solve problems together and think within a limited time frame. For example, consider a team of ICT experts or consultants.

Schindler says, „Previous research has suggested that financial incentives are not effective in tasks that require creative thinking, but these claims are based on thin evidence from highly artificial laboratory settings. We now want to systematically find out what the causal effects of incentives are. If, indeed, they work.”

Bonuses are very useful

Researchers now find that bonuses are more effective and that teams that can receive bonuses perform tasks significantly faster. They show that this is due only to the opportunity to earn money, not because participants are only informed of aspirational goals.

Another significant result is the development of leadership in this organization. Researchers see that teams show a greater need for leadership when there is an opportunity to earn a bonus. In another follow-up study, they show that persuading teams to choose a leader has a similar effect. This effectively shows that bonus incentives improve team structure and lead to the emergence of a team leader.

Schindler says, „Contrary to previous research, motivations work in tasks that require creative thinking, and they underscore the importance of leadership.”

Escape Games

The researchers used escape games in their research. „We're looking for a system where people work together in groups on problems of a non-routine and analytical nature,” says David Schindler.

„But we can systematically adjust bonus incentives and track output in a calculable way for a large number of teams. That's how we came up with escape games. Because participants work in teams, these provide the perfect setting precisely. Everyone has to coordinate and solve cognitive problems that require very different approaches.”

Organizations can use these results to design their incentive packages: team bonuses work and should be used accordingly to improve team performance. „Since we do not observe harmful effects (such as reduced enthusiasm for work), bonuses can be a powerful tool to increase output,” concludes Schindler.

Essay „Effect of Incentives on Nonstandard Analytical Group Tasks.” Published In Journal of Political Economy.