And a bit more on rewards

Just a bit more from the Hidden Costs of Reward. One of the pieces in there from Edward Deci digs a bit further into the different factors that influence the way that rewards affect us. Again this is tied to the idea that incentives/rewards can reduce intrinsic motivation (and performance, creativity...).

He makes the point that the effects depend in part on how we see the reward - is it about controlling/encouraging a certain behaviour, or is it 'informational' (ie a 'well done'). He argues that the latter will have less of a negative impact than the former. Along similar lines, the more salient the contingency of the reward (ie you must hit certain targets to get the bonus) the more potentially damaging. And notably women seem more likely to interpret rewards as controlling rather than informational than men.

Anyhow, once again you get drawn back to the idea that the evolution of performance-related pay in the boardroom tends largely to tick the WRONG boxes when looked at from a psychological perspective. Particularly because of the influence of agency theory, rewards are explicitly designed to direct behaviour (to overcome shirking and/or opportunism). What's more 'reform' of exec pay has focused on more complicated targets - including non-financial ones - which increase the salience of contingency.

One could argue that given that we are presumably dealing with confident individuals they won't read the incentives as controlling/directing, and instead reinterpret them as informational (ie I'm being given this money because I'm uniquely talented). But if that if the case (and I think it maybe in some instances) then incentives only don't do damage because the subjects don't interpret them/respond to them the way they are intended to.

Finally, it does lead you to ponder whether tying rewards to management of non-financials might lead to motivation crowding. Bruno Frey argues that regulation can reduce the desires to do they right thing amongst those that were doing it already, maybe financial incentives for managing ESG issues might do the same.