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When Incentives Go Wrong: The Hidden Costs of Motivating Creative People

In the early 1900s, commercial fishing interests along the New England coast had a problem: the abundant seal population was reducing the fish supply. Convinced that fewer seals would be the solution, Maine and neighboring states began paying bounties for every seal killed. As proof, one simply needed to bring a seal’s nose to a town clerk and collect the reward. 

But reality turned out to be far more intricate than what the policy’s creators envisioned.

For generations, the Passamaquoddy people of eastern Maine had hunted seals for food and clothing. By 1900, logging, fencing, dammed rivers, and mounting regulations had restricted the Passamaquoddy people’s access to their ancestral lands. Ocean hunting remained one of the few avenues left to maintain traditional subsistence practices, providing both food and clothing. As a result, when commercial interests pressured the state to eliminate local seal populations, they directly endangered an essential Indigenous livelihood.

In response, several Passamaquoddy hunters devised a clever workaround. Guided by traditional values that discouraged killing seals en masse, skilled artisans crafted convincing fake noses using small fragments of seal hide. A single pelt could thus produce dozens of bounty payouts. Suspicions rose in January 1904 after two Passamaquoddy men attempted to redeem 86 noses at once in Portland. The sheer scale of the operation was striking: claims spiked from 208 bounties in 1903 to 2,632 in 1904, prompting authorities to quickly end the program.

The scheme was illegal but reducing it to fraud over-simplifies the story. Commercial fisheries wanted to eliminate competition for fish, leading officials to establish a quantifiable metric (seal noses). Faced with a policy that threatened both their environment and their culture, the Passamaquoddy capitalized on the fact that the state was not truly paying for population reduction. It was paying for physical tokens. 

It is a wonderfully absurd example of a serious management problem. Incentives require us to translate what we really want into something observable enough to reward. But the moment we define that, the measure itself begins to compete with the mission.

This problem is particularly acute in creative work. Leaders want innovation, so they reward patents, product launches, ideas submitted, revenue generated, individual performance, or promotion-worthy accomplishments. 

But creativity works differently. So the right question is not, “Do incentives motivate?” because, of course, they do. The more useful question is: “What exactly do they motivate people to do?”

Research suggests that incentives shape creative work through at least three broad mechanisms: the effort type,  the orientation of thought, and the quality of social interaction.

1. Type of Effort 

In the 1990s, Safelite Glass Corporation changed how its windshield installers were paid. Instead of relying primarily on hourly wages, it introduced piece-rate compensation tied to output. Economist Edward Lazear studied what happened next.

Productivity per worker increased by roughly 44%. Part of the effect came from attracting and retaining more productive employees, but existing workers also increased their output. 

This is an important place to begin because incentives clearly work.

But notice the character of the work. Both Safelite and the workers know what a successful windshield installation looks like. You could consider this kind of work a “routine” or a “predictable” task, where both outcome and the process to achieve that outcome are very well defined. Employees, therefore, have considerable control over accomplishing the goal and incentives encourage people to achieve the goal faster.

Creative work is different because the process (and sometimes even the goal) often do not yet exist.

Imagine asking one engineer to install ten more windshields and another to invent a radically better way of replacing automotive glass. Greater intensity is likely to help the first. The second may need to slow down, explore a strange possibility, discard several promising ideas, or spend a week understanding whether the problem has been framed correctly.

A meta-study analyzed 183 studies involving more than 200,000 participants. They found that both intrinsic motivation and extrinsic incentives predicted performance, but their relationships differed according to the type of performance. Intrinsic motivation was particularly important for performance quality, while incentives were comparatively more important for performance quantity. 

Organizations often use the effort in the sense of intensity like working faster or longer hours. But creative work requires a different kind of effort that’s not as easily measured:  searching broadly for alternative solutions, experimenting, tolerating ambiguity, or persisting through roadblocks. 

A researcher under pressure to produce publications can work extremely hard while avoiding risky research questions. A product team can sprint heroically toward a launch date while failing to ask whether customers really need the product. An executive can relentlessly optimize quarterly results while starving experiments whose payoff lies years away.

In these cases, the incentives simply push effort in the wrong direction. 

If the path is well-known, extrinsic incentives can accelerate progress. However, if discovering the path is the work, pushing harder may simply get people to the wrong destination faster.

2. Cognitive orientation

In an elegant series of experiments, Teresa Amabile and her colleagues, had children and adults perform creative activities under different reward conditions. The key manipulation was whether participants understood the activity itself as something they were doing in order to obtain a reward. Across the studies, explicitly contracting to perform the creative activity for a reward reduced the creativity of the resulting work relative to relevant comparison conditions. 

The problem is not necessarily the reward itself. It is what the reward can do to attention. Without a salient external incentive, someone absorbed in a creative problem might ask: “What would happen if we tried the opposite?” or “What assumptions are we making?”

But when you make the reward salient, a different question enters the mental workspace:”What do I have to do to earn it?” That question can be highly productive when the task is unambiguous and predictable. But innovative work is often the opposite.

A meta-analysis of 60 studies found that rewards explicitly contingent on creative performance tended to improve creativity, particularly when accompanied by constructive, task-focused feedback and meaningful choice. Ordinary performance- or completion-contingent rewards, however, showed a small negative relationship with creative performance. 

In other words, incentives become attention-directing devices. Tell a team you need twenty ideas and twenty becomes important. Tell engineers that they will be evaluated on lines of code and code volume becomes important. 

Again, the employees aren’t behaving irrationally. They are learning what the organization has made salient and they are simply altering their effort accordingly.

3. Social interaction

The most consequential effects of incentives may not happen inside an individual’s head at all. They happen between people.

In one study, researchers looked at forced-distribution performance systems i.e. the practice of evaluating employees relative to one another. When participants performed a task individually, forced ranking increased their speed. But when work became collaborative, the results reversed. Not only did forced ranking slow down task completion, it also significantly reduced knowledge sharing. 

Consider a scenario where two people are collaborating on a new product. If one person discovers an insight that could significantly enhance the other’s part of the  project, passing that information along makes sense when the mutual outcomes are aligned.

However, if both people are competing for a single promotion, things get tricky. One study investigated this dynamic and found that strong promotion incentives were associated with greater individual effort but lower helping effort toward coworkers. 

A conventional performance-management system may record the first effect but completely miss the second one. For creative work, that blind spot is more dangerous. Innovation is rarely the product of isolated brilliance. Someone supplies an analogy, challenges an assumption, shares a contact, offers technical knowledge, or spends an hour helping a colleague escape a dead end.

Competitive incentives can put a price on that generosity. And under stronger competitive conditions, the consequences can move beyond withholding help.

In one study researchers created experimental tournaments in which participants could improve their chances of winning through productive effort or through actions that reduced a competitor’s performance. As the difference between the winner’s and loser’s rewards increased, participants exerted more productive effort and more sabotage. 

Most workplace sabotage isn’t very dramatic. It often looks more like a delayed reply,  a useful insight kept private, or an idea presented as “mine” rather than “ours.” Individually, these decisions can be rational but collectively, they can destroy the culture needed to support creative work.

That is why incentive design is ultimately also relationship design. It tells employees whether a talented colleague is primarily a source of knowledge, a partner in discovery or a threat to their own reward.

The real question behind every incentive

The Maine officials who paid for seal noses made an understandable mistake. They could not directly purchase their real objective, so they created a measurable proxy. 

More than a century later, organizations do the same thing with sales targets, KPIs, patent counts, performance ratings, promotion tournaments, publication metrics, and innovation bonuses.

The lesson is not that incentives are inherently corrosive. Incentives can increase effort, but they can also redirect effort, narrow attention and change colleagues into competitors. 

So before attaching a reward to creative work, leaders should think carefully about these questions: What behavior will this incentive intensify? What will it cause people to pay attention to? And how will it affect collaboration? These questions shift incentive design from a compensation problem to a problem of organizational architecture.

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Why Managing Innovation Is Key To Organizational Success

Analogies are tricky. They can suddenly illuminate a hidden facet and bring to light new insights, new ideas and new solutions. But just as often, they push you to think in a single direction, that when taken too far, causes more harm than good. 

One analogy that is surfacing again is that of wartime and peacetime CEOs. Now that many companies are facing existential crises, there are calls to move away from a peacetime mode and bring a more wartime mentality to doing business. But this is a false choice. Companies are not at war (yes, they have to compete but that’s different) or at peace – instead, their primary task is to continuously innovate and stay relevant. 

The reason that this particular analogy is dangerous is that a warlike approach – think of a general directing orders, employing (mostly) sticks and (sometimes) carrots to get his troops to perform – is the exact opposite of what is needed for true innovation to take place on a regular basis. To be fair, the analogy works at times because it has some truth to it. But every analogy has its limitations. A wartime approach works in narrow situations for short periods of time, but making it the default mode of operation in an environment where high levels of innovation are the only solution to stay alive can only cause long-term damage.

The Two Beasts: Innovation and Productivity

Every company has to do innovative work as well as routine or productive work. For example, deciding what new product or feature to release that is both novel and solves an important customer problem is innovative work. With the innovative idea finalized and the workability of the novel aspect determined, implementing it becomes more of a routine/productive work. Even though both kinds of work require problem solving (barring some of the most mundane routine tasks), they are of very different nature. While most people think of creativity as a fun, relaxing activity, in reality it is more cognitively demanding compared to critical or logical thinking.  

Productive work is much more linear and therefore predictable in nature, making it easier to plan and track. In contrast, innovative work is much more non-linear, it requires multiple iterations and carries larger risks. While project management tools can handle productive work well, innovation management needs a very different type of tool to capture its underlying risk and complexity. 

Incentives also work differently for the two kinds of work. External motivators (like monetary rewards or threat of layoffs) can improve performance of routine tasks but can backfire for creative work in some situations. When people are nudged to adopt an extrinsic orientation or expect to be rewarded for a task, they produce less creative work. 

And finally, even though both kinds of work require collaboration, the nature of collaboration is different. For routine/productive work, collaboration is primarily coordination of tasks – tracking individual tasks and dependencies between different tasks and people. Creative work, on the other hand, requires collaboration of ideas – different ideas clashing together to create something much more interesting. In other words, even the day to day work that people engage in, including the kinds of things people talk about in meetings, is vastly different for innovative and productive work. 

Innovative and productive work are both equally essential for a company. However, they are two very different beasts and the real challenge comes in managing both without compromising either. 

When productivity metrics are applied to innovative work, as often happens in the corporate environment, a natural and predictable consequence is for innovation levels to drop. If you are tasked with a feature and your success is tracked through completion deadlines, there really is no option for you other than to pick the safest and simplest implementation that allows you to show up “green” on the project dashboard. Risk averseness starts to creep in at every level from padding estimates to reducing complexity, and innovation, which by its very nature involves high risk, is suppressed. 

Or, when companies implement some form of “rank and yank” system, idea collaboration among employees drops. If you are forced to compete with the person sitting next to you, it doesn’t make sense for you to collaborate and share credit if you believe you have a winning idea. An idea that could have bloomed with new perspectives, remains stunted. People become more focused on protecting their turf, leading to more politics and again, less innovation. 

If you think that hiring the smartest people would circumvent this problem, you would be mistaken. The underlying currents of human motivation and self-preservation are far too strong for things to go any other way. Most people eventually learn to adapt to the system and those who can’t or don’t want to, get frustrated and leave. 

The challenge for any company is to manage both these processes successfully, and neither the wartime nor peacetime approach is adequate. 

How The Manhattan Project Managed Radical Innovation

One of the most interesting examples to have successfully tamed the two beasts to produce groundbreaking work was the Manhattan Project, which produced the first nuclear weapons. To understand how impressive this accomplishment was consider the following:  

  • The Manhattan project started modestly but grew to about 130,000 people in just a few  years, spread across multiple locations.
  • The team faced huge scientific and technical challenges – prior research on producing fissionable was very preliminary and had many gaps. Processes that were eventually adopted, either did not exist before the project or had never been used with radioactive materials before. 
  • Fears that the German nuclear research team would produce the first atomic bomb created a strong time pressure. Fundamental research, and the design and building of the plant had to be done concurrently, something that had never been done before. 

These and other issues placed considerable management stress from scaling the team to shipping a challenging product on an accelerated schedule. So, how did the Manhattan project pull off such a feat?

To start, Leslie Richard Groves, the general in charge of the overall project, had the foresight to recognize that the typical command-and-control management style would not yield the required levels of innovation and there was no existing playbook to go by. Despite being in the middle of an actual war, he took a decidedly “un-wartime” approach to management. He first hired J. Robert Oppenheimer, a well respected theoretical physicist at UC Berkeley, as his counterpart to work with the scientists and researchers. Effectively working as co-CEOs, they found new ways of managing people and work in order to accomplish their audacious goals. 

And they faced massive challenges from the get go. For example, when Groves asked scientists how much fissionable material would be needed for each bomb, he expected an estimate within 20%-50% and was horrified when he got a factor of ten! He quipped, “My position could well be compared with that of a caterer who is told he must be prepared to serve anywhere between ten and a thousand guests. But after extensive discussion of this point, I concluded that it simply was not possible then to arrive at a more precise answer.”

Faced with such high levels of uncertainties, Oppenheimer and Groves realized that they will have to pursue multiple solutions at the same time. Given the time constraint, they decided to explore all options in parallel both for producing fissionable material and for gun design. They spun off multiple teams to explore different alternatives, and plant design proceeded under the assumption that any or all of these approaches would be needed. As research progressed, Oppenheimer realized that some of the processes could be combined for higher efficiency, a lucky turn of events that wouldn’t have happened without the parallel approach! 

Managing Innovation

Groves and Oppenheimer showed that it is possible to create an environment where there is a balance between urgency and innovation, structure and flexibility, hierarchy and egalitarianism. 

Innovation is fundamentally about managing uncertainty and risk, and the more radical the innovation the higher the uncertainty to manage. Using a top-down, highly directive leadership style doesn’t work because it increases risk (one person’s judgment is more error prone for complex problems) and reduces intrinsic motivation among employees which is essential for innovative problem solving. 

Despite the fact that Groves and Oppenheimer were both highly competent in their own ways, they did not push down any directive that would interfere with problem solving. Instead they did the opposite – by really listening to the people doing the work, they were able to clearly understand the inherent limitations in the project. They did several other things that led to  a creative climate. For example, Oppenheimer insisted early on that scientists have full access to the compound so they could observe all aspects of the project, leading to free flow of ideas. He was also known to take good care of his people, so compensations were generous and equitable. Teams also didn’t shy away from conflicts – vigorous debates were common but they were focused on problem solving. Intentionally or intuitively, they made sure that none of the factors that harm creativity and problem solving were accidentally introduced in their management approach. By enabling the scientists and engineers, they allowed more creative solutions to emerge for the myriad of challenges that kept popping up.  

Groves and Oppenheimer were successful, not by following any pre-existing playbook, but by systematically removing any barriers that came in the way of innovation. 

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Improving Student Motivation in High Stakes Environments

Over a period of 5 years, from 2000 to 2005, the US slipped from being ranked 18th in the world in math to being 40th and from 15th to 24th in reading. While many reasons have been proposed for this decline in education, like increasing diversity and rising poverty levels, one factor that has gained increasing attention is standardized testing. 

Standardized testing by itself is a useful tool to see how schools are performing. However, when standardized testing becomes an accountability tool — where schools, teachers or students are rewarded or penalized based on test outcomes — tests become high-stakes and carry the potential for damage. Standardized testing had been in use in the US for many decades but starting with the No Child Left Behind Act in 2002, testing became much more high stakes which then changed teaching patterns in classrooms. 

Reduction of Intrinsic Motivation

The main problem with high stakes testing is that it incentivizes all players — schools, teachers and students — in ways that don’t help in deeper learning. Instead of tapping teachers’ and students’ intrinsic motivation, it imposes strong extrinsic motivators on them. 

With school funding tied to test scores on limited subjects, time spent on teaching other subjects declined. An analysis on schools and districts found that 70% of school districts reported a focus on reading and mathematics that reduced instructional time for other subjects. 

The motivation effect extends to students as well. Teachers inadvertently pass on extrinsic motivators in the forms of excessive focus on scores or grades to students, instead of having more discussions in the classroom. As more instruction time is spent on preparing for tests, students have less time to be curious and connect their learning to the real world. As a result, students start losing interest in learning itself and no longer find schooling meaningful. 

This is especially harmful for student creativity, which relies on a well-rounded education. Creativity comes from having knowledge in several areas and being able to find connections between domains. When instruction and exploration time in other subjects like science, social studies, arts and music, are cut down the overall creativity of a child reduces. This is one reason that creativity scores of students have declined significantly over the last few decades. 

Strategies to increase motivation and learning outcomes

When high stakes testing is part of the educational culture, are there some ways to limit the harmful aspects and still achieve good learning outcomes? 

In one study conducted at Chicago Public Schools (CPS), researchers tracked low-achieving students from five elementary schools in a high stakes environment. CPS implemented a policy to end social promotion where students would be held back in the current grade if they failed to achieve a minimum score on standardized tests in reading and mathematics. The researchers found that there was a significant difference in outcomes between schools with the top performing school having 4x lower retention rate than the worst performing school. 

The top performing school employed strategies that better supported students in achieving their goals.

  • Positive, goal-focused environment: Teachers created a more positive and supportive environment for students, where students felt that the teachers personally cared for their success. The teachers frequently brought up the student goals, determined ways for them to achieve them and praised the effort students were making. All of these strategies created an environment where students’ social connection motivated them to exert more effort. As one student expressed, “She says we better try. She plays around saying she doesn’t want to see us again next year, that it’s time for us to leave… she’s usually clowning around but she’s telling the truth…She cares about all the children… She shows us by teaching us more stuff and giving us examples of the test.”
  • Shared expectations: Teachers in the high performing school created a sense of responsibility for the whole group. They nurtured an environment where not just the teacher-student relationship mattered but also the peer interactions. When students perceive that their peers are on their side and want them to succeed, their motivation increases. 
  • Support outside of regular school hours: The CPS effort also provided other avenues of support including after-school programs and summer school. These extra avenues gave students a significant boost in academic support. A majority of the students who increased their effort levels participated in after-school programs or tutoring that extended the in-class instruction. They were able to get more work done by themselves and did more homework than students who only attended regular school. 

These factors helped increase social and intrinsic motivation among students, providing a counterbalance to high-stakes extrinsic motivation. As the researchers note, “Thus, the social context of learning—how teachers, parents, and peers interact with students in relation to the policy—may be the most important factor in determining how students respond to the incentive.”

Conclusion

The standardized testing environment that is now an integral part of the US educational system will not change overnight. While there are advantages to measuring student performance, tying those results to incentives for schools or teachers creates harmful effects that lower intrinsic motivation and learning outcomes. Despite that, there are strategies schools and educators can use to build a more caring and supportive environment in their classrooms to help students achieve their learning goals. 

This article first appeared on edCircuit. 

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How Play Helps Creativity and Learning

Some of the most groundbreaking innovations didn’t get their start from a serious effort to solve a problem but from much more frivolous, playful ideas. After the first music boxes were invented, people got interested in making programmable music boxes that could play different music when the cylinder was replaced. But this basic idea – that the behaviour of a machine could be changed – became the catalyst for more serious inventions like the programmable Jacquard loom and the general purpose computer. 

Most people tend to dismiss play as childish and silly. However, a playful approach to problem solving can bring out fresh, creative ideas that may not have surfaced otherwise. Not all environments encourage play, though. 

Mitchel Resnick, Professor and Director of the Lifelong Kindergarten group at MIT, uses the metaphor of playpen vs playground to differentiate the different kinds of play they support. A playpen is a restrictive environment where children have limited opportunities to explore, whereas a playground promotes open exploration, problem solving and creativity.

So how does one create a healthy playground? Here are a few ways to promote play in student work.

Tinkering

Environments that support guided and open exploration have been found to be more effective in student learning. To allow for more tinkering, allocate time during projects for students to explore different ideas or directions to pursue, even if most of them don’t lead to any success. Similarly, allocate time for students to iterate after they have chosen an idea and started developing it more. Asking students to explain the thinking behind their ideas also helps them discover shortcomings that they can improve as they iterate. The focus during tinkering is not to judge ideas, but simply to understand and help students elaborate the idea in as much depth as possible. 

Social Interaction

Most play has a social element that allows ideas to be exchanged freely. Creating a space and time where students can explore others’ work and bounce ideas off of each other also helps in improving creativity and learning. The best ideas in a group setting tend to filter to the top and get incorporated by different teams. While this may feel like “cheating”, it’s how most innovation works in real life – by merging bits and pieces from others into your own unique creation. 

One way to increase healthy social interactions, is to teach students how to critique others’ ideas and allow them to suggest constructive improvements to other projects. When done well, this builds both social cohesiveness as well as critical thinking. 

Intrinsic Motivation

Creativity flourishes in environments that foster intrinsic motivation and suffers under extrinsic motivation. When students are intrinsically motivated they are more likely to explore and take risks. A focus on grades or scores can push students from intrinsic motivation to extrinsic motivation. Instead of external grades that evaluate project work, use self-evaluation forms so students can assess for themselves what aspect of their project could stand to improve. 

Play can be a powerful way to bring out student creativity and enhance learning. By creating a low stress environment where students can freely explore their own ideas and share with others, some of the beneficial aspects of play can be incorporated into student project work. 

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Designing Products to Build Intrinsic Motivation

In a recent study researchers wanted to explore the relationship between rewards and motivation in the context of education. In order to understand the impact of gamified elements on student motivation and learning, they designed a long-term study for students enrolled in a semester long course. Students were divided into two groups – a gamified group that used a reward system aligned with the learning goals, and the control group that received the same instruction but without any gamified elements. They looked at student grades at the end of the course along with student surveys, and confirmed what some educators had always suspected.

The researchers found that the non-gamified group not only did better at the end of the semester exam, they also reported higher levels of motivation and satisfaction at the end of the class! As the researchers explain, “The results suggest that at best, our combination of leaderboards, badges, and competition mechanics do not improve educational outcomes and at worst can harm motivation, satisfaction, and empowerment. Further, in decreasing intrinsic motivation, it can affect students’ final exam scores.”

While typical gaming elements like points and badges can lead to increased engagement in the short term, it is now believed that the initial appeal is due to a novelty effect, and that engagement and motivation decline as the novelty wears off. And this effect is more pronounced for younger age groups, where novelty and interest declines faster.

Educational products routinely employ rewards like badges and scores to get initial interest and traction among users, however, as research is now pointing out, these elements have negative long term consequences as they promote extrinsic motivation instead of building intrinsic motivation among students.

So,  how can we design educational products that focus on building students’ intrinsic motivation?

Edward Deci and Richard Ryan, professors of Psychology, have studied motivation for several decades and developed the Self Determination Theory (SDT) of motivation. According to their theory, three innate psychological needs play a role in motivation – competence, autonomy and relatedness. The main premise behind their theory is that humans have an inherent tendency to learn, have agency in their development and connect to others. Their theory has been widely used in many contexts, including gamification.

Based on the underlying theory of self determination, here are some high level product approaches that can be used in lieu of rewards to build the right kind of motivation:

Exploration

Creating a playful environment that leads to self-directed exploration ties to the underlying need for autonomy and competence. Games or products should allow for the freedom to fail, by allowing users to recover from mistakes without penalty. Games should also provide a freedom of choice, where users can decide what they want to work on or what skill to develop.

Feedback

In a classroom, feedback can be slow and constrained as teachers can only provide feedback one at a time. Games where feedback can be immediate can have a positive impact on the need for competency. Feedback messages that are actionable (guide the student in the right direction) and focus on growth mindset have been found to be effective.

Collaboration

A typical classroom environment fosters competition among students instead of collaboration, which in turn reduces intrinsic motivation. Elements like leaderboards have the same effect due to social comparison. A better way would be to design products that allow meaningful collaboration among students, and tap into the need for relatedness. Social cues that signal working together have been found to boost intrinsic motivation.  

 

Intrinsic motivation has been found to link positively to learning outcomes as well as personal wellbeing. Introducing the right kind of gamified elements into product elements can boost intrinsic motivation among students, but it involves walking away from more traditional elements in games like badges and points.