Behavioural bonuses

Today via someone else (sorry I don't remember who) I came across a recent piece by behavioural economist Dan Ariely in the New York Times on whether bonuses work or not. Now this is based on some experiments, rather than real-life examples, but worth a look:

[U]ndergraduate students were offered the chance to earn a high bonus ($600) or a lower one ($60) by performing one task that called for some cognitive skill (adding numbers) and another one that required only a mechanical skill (tapping a key as fast as possible). We found that as long as the task involved only mechanical skill, bonuses worked as would be expected: the higher the pay, the better the performance. But when we included a task that required even rudimentary cognitive skill, the outcome was the same as in the India study: the offer of a higher bonus led to poorer performance.

Funnily enough I seem to remember something similar in Tim Harford's most recent book - incentive pay only really works very effectively when there is a relatively straightfoward and standardised task and where performance in the task can be accurately measured. So that rules out a lot of activity where people earn really big bonuses.

But arguably the more interesting bit in the Dan Ariely article is the effect of public scrutiny:

We asked 39 participants to solve anagram puzzles, sometimes privately in a cubicle and sometimes in front of the others. We reasoned that their motivation to do well would be higher in public, and we wanted to see if this would affect their performance. But we found that while the subjects wanted to perform better when they worked in front of others, in fact they did worse.
So it turns out that social pressure has the same effect that money has. It motivates people, especially when the tasks at hand require only effort and no skill. But it can provide stress, too, and at some point that stress overwhelms the motivating influence.

So two factors that might ordinarily be assumed to encourage better performance may actually have the opposite impact. This seems to be something worth exploring, to put it mildly.