A Bonus Matters More When Its Size Is a Pleasant Surprise: Sarah Green Carmichael

It’s the most wonderful time of the year — and an expensive, annual ritual. No, not Christmas. Bonus season!

The yearly paying out of lump sums to reward top talent is such a standard, established practice, questioning it may seem a little quaint. More than three-quarters of U.S. companies use performance incentives of some kind. Yet the fact remains, we don’t really know how well they work. Do they encourage people to work harder and smarter?

Behavioral economics and organizational psychology don’t provide a clear answer. “All the literature suggests that money, including bonuses, satisfy a lot less than we think,” says organizational psychologist Tomas Chamorro-Premuzic. It feels good to get that big check, but the feeling is fleeting. However, satisfaction and motivation are subtly different things. Money may not make us happy, but it can motivate us to persevere on an unpleasant task.

One fun study — fun to read about, not especially fun to participate in — asked people to count cash or slips of paper, and then submerge their hands in scalding water. When asked how much their hands hurt, the participants who had counted money rated their pain less than the control group. Kathleen Vohs, who led this research, has conducted an array of other studies with similar findings (if gentler methodologies).

Research also suggests that a performance incentive can help people achieve specific goals — such as quitting smoking or remembering to take their medicine. And financial incentives can cause people to spend less time with friends and family, and more time with their colleagues, according to a study by Julia Hur, Alice Lee-Yoon and Ashley Whillans.