‘Paying too much may harm employees’ performance’

November 20th, 2008 - 2:17 pm ICT by IANS  

Toronto, Nov 20 (IANS) A new Canadian study shows that paying too much performance-related incentive may not get you the top performance.Citing studies done in India and the US, Canadian university researchers in behavioural economics warn that employers hoping to get the best out of their employees with high salaries may actually be helping them to do worse.

“If the payments are too high, they may backfire,” said Nina Mazar, study co-author and Toronto University marketing professor.

“I don’t think people realise that there is a threshold,” she was quoted as saying in a statement by the university.

She said a moderate hike in incentives improved performance of participants doing tasks requiring creative thinking, problem-solving or memory skills. But once the incentives crossed a certain threshold, they did not perform as well and just “choked”.

“What we were really surprised by is that it didn’t matter what kind of task - as soon as it involved even a little bit of cognition, very high incentives did not work,” said Mazar.

However, performance-related incentives “seemed to work very well” in tasks that were purely rote and mechanical, according to the study.

In the experiments (which form the basis of the study), participants were given games to play, anagrams to solve, adding tasks and jobs involving pressing keys.

One such experiment was conducted in rural India where participants were offered high financial incentives of up to half a year’s income on a modest research budget, the statement said.

Another experiment was conducted on American university students at the end of an academic term, when they were low on funds and thus more responsive to financial incentives.

But there was no difference in the findings in the different experiment settings, Mazar said.

“There is evidence from psychology that too high levels of stimulation can harm performance. We show that a similar relationship can be found for financial incentives and performance,” she said.

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