Do High Stakes Incentives Kill Creativity?

Business people love a good incentive for their employees. Put a nice juicy carrot in from of someone, the thinking, goes, and they're sure to work hard enough to reach it (though of course, there has been plenty of debate about how to get incentives right, and what happens when incentives go wrong). But according to a thought-provoking write up of the latest thinking on incentives on the NY Times Freakonomics blog, the picture is far more complicated than that.

The lengthy post by Yale professor Ian Ayres argues high stakes incentives work differently for tasks that demand creativity and for those that require willpower.

One of the coolest experiments described in Dan Ariely's The Upside of Irrationality shows that incentives sometimes backfire. Ariely (together with his collaborators Nina Mazar, Uri Gneezy and George Loewenstein) arranged to send five economics graduate students from Narayanan University to local villages near Madurai in Southern India. They asked subjects to play a series of game "tasks that demanded attention, memory, concentration, and creativity".... They wanted to see how performance was affected by offering rewards of various sizes.
They found out that big bonuses didn't improve performance.... Ariely makes a compelling case that supersized incentives can be cognitively distracting.... Ariely's subjects were probably choking. They were thinking too much (or thinking about the wrong things, like how terrible they were going to feel if they screwed up on this chance of a lifetime).
If what Ariely's experiments seem to prove (and what Daniel Pink suggests in this TED talk) is true and high stakes incentives fail for tasks that demand creative problem-solving, does that mean we should abandon pay for performance entirely? No, says Ariely, because incentives do sometimes work. "Commitment contracts in particular can help when the problem isn't a lack of creativity but a lack of willpower," he writes.

Quitting smoking or finally starting that diet are clear examples of occasions when incentives can give willpower an encouraging kick in the behind. But incentives can also work for more thoughtful tasks with a component of willpower. Discussing stickK, a site where people promise to pay if they fail to do something as a commitment device, Ariely says:

Even projects like songwriting that are essentially creative often have discrete sub-components that are more about execution. Large stakes may distract us when it comes to the cognitive components, but it shouldn't be surprising that people use stickK to help them finish their dissertations. Committing to put in 40 hours a week in front of your computer or committing to get a draft of chapter two to your advisor by the end of the month can help you make progress.
The conclusion to all this? Incentives may sound simple to understand but getting them right is actually difficult and demands careful thought. Don't rush in without teasing apart the possibility of stress-induced brain freeze, from the likelihood that shame and anxiety will boost your willpower.

(Photo courtesy of Flickr user billaday, CC 2.0)