Yes, rewards motivate people. To get more rewards.

Hello! I’m finally back to blogging, after a short hiatus to focus on my app’s launch. It’s been a topsy-turvy few weeks with several delays, but we’re now only a week away from launch. Hopefully.

Delays beyond your control can be quite deflating when you’re waiting for the culmination of months of effort. But it’s at times like these that it’s most important to keep your shoulders to the wheel – even when things are not fully in your control, you need to do everything you can.

In this sense, the last few weeks have been a microcosm of the entire starting up experience – unless you’re Elon Musk, luck and other external factors will play a significant role (often more than your otherwise significant efforts) in success or failure. What you can do, is stay on the field. And that requires motivation.

Hard at work

Motivation is a strange beast. I used to think that decent pay and bonuses are good motivators, but here I am, grinding away with no income. And I’m enjoying myself. Clearly, there are some intrinsic factors at play that keep struggling entrepreneurs in the game (hopefully not foolhardiness though).

I’ve wondered about this quite a lot over the last 2 years. But a lot of my questions were answered when I read Drive a few weeks ago. This book, written by Daniel Pink, explores what really motivates us, based on findings from scientific research. [Hint: it’s not money and bonuses]. I’d recommend this book to everyone – understanding what motivates people has pretty direct implications for how we manage our employees, our bosses, our customers, our families, and everyone else we interact with on a regular basis.


But this isn’t a book review or summary. Ever empathetic to the busy reader, Pink himself has included summaries (both Twitter and cocktail party variants) at the end of his book. Instead, I would like to dwell a little on one aspect – his discussion on extrinsic motivation. I found it fascinating to understand some of the pitfalls of extrinsic ‘carrot’ rewards like money and bonuses.


1. Money drowns out intrinsic motivation and performance.

Research shows that even if you innately like a task, being paid for it actually reduces how much you like it. I was surprised by this result, but some others intuitively get it. For example, one person I know loves baking in her free time, but doesn’t want to do it full-time – she feels that the pressure of earning money will reduce the pleasure she gets from baking.

Rewards perform a weird sort of behavioral alchemy – they can transform an interesting task into a drudge, a fun assignment into a bore, and play into work. And by reducing intrinsic motivation, they can send your performance and creativity toppling like dominoes. What’s more, you’ll now only do these tasks if you’re paid for them. [Note to parents – don’t pay your kids for household chores]

2. Extrinsic rewards give a short-term boost. Like a jolt of caffeine, they’re particularly useful when a deadline is looming. But like the energy crash that inevitably follows a post-coffee frenzy, long-term motivation and performance will also fall.

3. ‘Carrots’ can become addictive.

Offering an extrinsic monetary reward for a task signals that it is undesirable (if it were desirable, would you need a carrot?). And this, to resort to cliché, is a slippery slope. Offer too small a reward, and they won’t comply. But offer a reward that’s enticing enough the first time, and you’re doomed to offer it forever.

But the bad news doesn’t end there. Once the initial money buzz wears off, this will feel less like a bonus and more like the status quo. You’ll then have to offer ever-larger rewards to get the same task done, just like the nicotine addict falls into the vicious cycle of more and more cigarettes to get his ‘hit’.


4. Rewards promote short-term thinking

Donkey and a carrot

Once there’s a carrot in front of you, that’s all you’ll see, at the expense of more long-term objectives. Just like the auto mechanics who conduct unnecessary repairs to meet their sales quotas. Or, more terrifyingly, Delhi’s monster Blueline buses which went on a killing spree, all because of an innocuous incentive to ply their routes quickly.

5. However, extrinsic rewards aren’t completely useless. If the task at hand is process-oriented, like filing documents into folders, then an incentive can speed you up and reduce your Facebook / power nap breaks. But if a task is creative, then monetary rewards have the effect of narrowing your thinking – when what you require is the exact opposite.

6. When you attach a bonus to a target, you may increase the probability that it will be hit (at least if the task is process-oriented). But you almost guarantee that the target will not be surpassed. Your teams will work hard to meet the target. But no further.


Thus, over a basic threshold of the amount needed for basic comforts and happiness, monetary incentives can work negatively. This has deep implications for how we manage our teams, employees, families, etc.



We could now talk about what does motivate people. But why don’t you read the book for that? Let’s do something more interesting instead – let’s predict what these findings mean for some of the trends in our economy.

a. E-commerce: If your value proposition is ‘lowest prices’, don’t expect any loyalty once that becomes untrue. Case in point: Deep discounts in Indian e-commerce today are themselves hurting brick-and-mortar discount retailers.

b. Many heavily funded startups are spending equally heavily to acquire employees and customers. But these efforts may have a short shelf life.

    1. If you’re throwing money at employees, you should expect that you won’t retain them over time, and that performance will suffer in the interim. Unlike large companies, work at startups is not algorithmic and process-oriented – you need someone who reigns in (and reins in) chaos.
    2. In their bid to conquer the mobile space, many companies are incentivizing app downloads by the millions (yes, users actually get paid for downloading apps). Even if these investments boost vanity metrics today, results will tail off very quickly, as users begin to install apps just for the rewards, and then never use them again.

Throwing away money

c. If you do have to use incentives, design a mix of long- and short-term targets, and make them harder to game.

    1. App marketers could incentivize use of the app over time, and not just installs. Give a bonus on the first major activity, rather than on ‘Install and use for 30 seconds’.
    2. In a corporate sales scenario, bonuses could be driven by both new sales and customer churn, to promote longer-term customer management vs. one-time discounts.

d. But even when promoting use, a monetary incentive is bad news. Just like Drive showed, if you create incentives around specific targets, people will work hard just to meet them, and no more.

A case in point is the Indian government’s drive for rural toilet construction (a strong interest area of mine – see this). Over the last 15 years, the government has given ever-increasing incentives for toilet construction – starting with Rs. 200-400 in the early 2000s, to Rs. 12,000 today. But they’ve seen large numbers of toilets being used as anything but – often as store-rooms or an additional room. People have just constructed ‘toilets’ to pocket the incentive.

Yes, this is a toilet!

Yes, this is a toilet!

Many stakeholders are now trying to move the incentive towards usage – e.g., a part of the reward comes to you only if you’re still using the toilet 3 months after construction. While this idea sounded great the first time I heard it, I now fear it may also be doomed to fail. This effectively destroys intrinsic motivation to use a toilet (which there otherwise would be – it is indeed far more convenient than open defecation). People will feel they’re being paid to defecate at home because that’s the less comfortable thing to do. When the incentives stop, use will fall too. Bringing us back to square one.


Extrinsic rewards are undoubtedly simpler to design – what’s easier than throwing money at a problem, in these profligate times? But Drive serves a timely reminder that as in most other areas, only the hard work of creating intrinsic motivation will bear fruit.

Hope you found this post interesting. Can you think of any other implications of extrinsic ‘carrot’ rewards? Do share in the comments. You can also email me at or tweet at @jithamithra. Until next time, then!

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2 Responses

  1. August 31, 2015 / 3:47 am

    High quality of information. In the beginning, I believed your post was too long, but it surely needed the length.

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