About those CEO bonuses: How financial incentives make us less creative.

Nature blogger Graham Morehead isn’t looking over any new research with this post, which makes it all the more remarkable. Since the early 1960s, we’ve known that offering money as a reward makes us worse at solving problems:

Knowing what was going to happen didn’t help. His new division became just as crisis-soaked and hectic as the last one. Then the layoffs started… During a five-year period, the number of employees at Company X grew sixfold, but R&D was cut by half or two-thirds, depending on whom you ask. The decision to cut R&D was so absurdly short-sighted it bordered on comical.

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The company was so focused on small things like tax-deals that it had lost perspective on long term development. It was as if Company X were wearing blinders. This is exactly what research predicts.

…[Karl] Duncker provided subjects with a candle, some matches, and a box of tacks. He told each subject to affix the candle to a cork board wall in such a way that when lit, the candle won’t drip wax on the table below…. Can you think of the answer?

The only answer that really works is this: 1.Dump the tacks out of the box, 2.Tack the box to the wall, 3.Light the candle and affix it atop the box as if it were a candle-holder. Incidentally, the problem was much easier to solve if the tacks weren’t in the box at the beginning.

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Now, let “In-Box Candle Problem” refer to the original description where the tacks start off in the box.

In-Box Candle Problem Mean Times :

…WITHOUT a financial incentive : 7:41 min
…WITH a financial incentive : 11:08 min

How could this be? The financial incentive made people slower? It gets worse — the slowness increases with the incentive. The higher the monetary reward, the worse the performance! This result has been repeated many times since the original experiment.

Whenever people must think out of the box, offering them a monetary carrot will keep them in that box.

A monetary reward will help your employees focus. That’s the point. When you’re focused you are less able to think laterally. You become dumber. This is not the kind of thing we want if we expect to solve the problems that face us in the 21st century.

Read the whole thing to get the complete, nightmarish picture of how this probably applies to where you’re working *right now*.