Using Money As An Incentive
--Nipun Mehta
2 minute read
Aug 24, 2008


From Mexico to New Jersey, educational institutions are trying to pay students to go to school.  Conditional cash transfers (CCTs) is what they're called.  For the short term, numbers show that it's working and now, people are using that strategy across other sectors like healthcare.

By classic economic theory, performance is positively related to effort; and effort is unpleasant and money is good; so when money input increases, we expect effort and performance rise.  But new research now points to something interesting:

In this paper we have provided quantitatively precise evidence, in a controlled environment, of the effect of the introduction of monetary compensation on performance, which includes a precise comparison of the cases in which the reward was given in different quantities or not given at all. The result has been that the usual prediction of higher performance with higher compensation, when one is offered, has been confirmed: but the performance may be lower because of the introduction of the compensation.

That's a complicated way of saying that the more you pay people, the harder they work, but the hardest work is done by those who weren't paid at all!  Or as Howard Thurman might put it, "Go out and do what makes you come alive," because, as it turns out, that's how you get the best performance.

Several years ago, I remember Jayesh Parekh -- an established entrepreneur -- remarking at CF's Night of Inspiration that he would invest in the CF team anyday (as a commercial venture).  Today, it would be even more of a sure bet.  I mean, it's not everyday that one finds a space where the former editor of CS Monitor is volunteering side by side with a 25-year-old YouTube-homepager-filmamker with a Mexican tree-sitter-PhD-at-Cal with a former news anchor?  We've got a talented bunch. 

Unfortunately, though, the "what-if-all-of-us-could-do-this-fulltime-and-pay-our-bills" dream is impossible.  It simply can't happen.  And it can't happen, because of this intangible thing called non-financial motivation.

You get what you pay for.  And if you never try paying for it, you might even get more. :)


Posted by Nipun Mehta on Aug 24, 2008