Bonus Boost: Financial Incentives Work in Creative Teams, Says Economist

Bonus Boost: Financial Incentives Work in Creative Teams, Says Economist

Many companies give out bonuses at the end of January. Economist David Schindler explored whether bonuses work in modern work situations where teams must address complicated problems collaboratively. His key conclusion is that bonuses are extremely beneficial and boost performance in this situation by supporting the emergence of leadership.

Teamwork requiring analytical thinking has grown dramatically in recent decades. Until the 1970s, the majority of the workforce worked on manual and repetitive routine tasks that required little team coordination. Today, work is frequently structured into teams, in which team members must solve challenges together and think outside the box within a restricted timeframe. Consider a team of ICT specialists or consultants.

Bonus Boost: Financial Incentives Work in Creative Teams, Says Economist

Schindler states, “Previous research has suggested that financial incentives are ineffective in tasks that require creative thinking, but these claims were based on thin evidence from very artificial laboratory settings.” We now sought to systematically investigate the causal impacts of incentives and determine whether or not they work.

The bonus is effective: The researchers now believe that bonuses are quite effective and that teams who can earn a bonus complete the assignment much faster. They demonstrate that this is only due to the possibility to earn money, and not because only aggressive goals were given to participants. Another notable outcome is the growth of leadership in this situation. The researchers discovered that when teams can earn a bonus, they are more likely to seek leadership. In a follow-up study, they demonstrated that persuading teams to choose a leader has a similar impact. This demonstrates that bonus incentives are likely to promote team organization and result in the development of a team leader.

Schindler states, “Our research reveals, contrary to past studies, that rewards do work in activities that demand creative thinking. And they emphasize the importance of leadership, which we did not anticipate playing such a critical role.”

Escape games: The researchers employed escape games in their study. “We were looking for a setting in which people work together in teams, on problems that are non-routine and analytic in nature,” explains Schindler.

“But we also needed to be able to systematically alter bonus incentives and measure the results for a large number of teams. That is how we came up with escape games. These are appropriate settings because participants work in teams and must coordinate and solve cognitive challenges that may require very different methods.

Firms can utilize these findings to develop incentive packages: team bonuses are effective and should be used appropriately to boost team performance. “Since we don’t observe detrimental effects (such as reduced excitement for the task), bonuses can be a powerful tool to enhance output,” Schindler goes on to say.