We found that as long as the task involved only mechanical skill, bonuses worked as we usually expect: the higher the pay, the better the performance.
We replicated these results in a study at the Massachusetts Institute of Technology, where undergrads were offered the chance to earn a very high bonus ($600) or a lower one ($60) by performing two four-minute tasks: one that called for some cognitive skill (adding numbers) and another that required only mechanical skill (tapping a keypad as fast as possible). On top of that, the people offered medium bonuses performed no better or worse than those offered low bonuses. The group offered the highest bonus did worse than the other two groups-in every single task. The medium bonus was $5, or about two weeks' pay, and the very high bonus was $50, roughly five months' pay. The low bonus was 50 cents-equivalent to one day's work in rural India. We did this study in India, where the cost of living is relatively low so that we could pay people amounts that were substantial to them but still within our research budget. About a third of the subjects were told they'd be given a small bonus, another third were promised a medium bonus and the last third could earn a very high bonus. We promised them various payments if they performed any of these tasks exceptionally well. We asked them to fit pieces of a metal puzzle into a plastic frame, to play a memory game and to throw tennis balls at targets, among other tasks. In one experiment, we presented 87 participants with an array of tasks that demanded attention, memory, concentration and creativity. What do we really know about the relationships between very large bonuses and job-performance? To look at this question, my colleagues Uri Gneezy of the University of California at San Diego, George Lowenstein of Carnegie Mellon, Nina Mazar of the University of Toronto and I conducted a few experiments. I now suspect they were too quick to discount my research. The executives assured me that their own work would not follow this pattern. Perhaps unsurprisingly, they were not at all interested. A year and a half ago, I presented this assertion to a group of 25 high-powered executives-at a (then) very large bank-and suggested that with a large enough research budget and their participation, we could test my theory.