Who needs a bonus? In fact, who needs pay?

  • Share
  • Read Later

Goldman Sachs’ top executives recently made the news for refusing to take bonuses this year. Hear that? It’s the sound of me clapping really slowly. Bravo, fellows. Bravo. Your stock is down 60% this year, and your firm is expected to announce its first quarterly loss as a public company in December. But you’re going to bite your lips and — deep breath — take home only your annual salaries of $600,000. Heroes. True heroes.

UBS and Barclays are following suit, and New York Attorney General Andrew Cuomo is trying to make sure those greedy louts over at AIG do, too.

In times like these, chucking bonuses for execs seems like a no-brainer, if only for public relations. But it turns out that bonuses don’t really work, at least not in the way we expect. Dan Ariely, a professor of behavioral economics at Duke and author of “Predictably Irrational: The Hidden Forces That Shape Our Decisions,” conducted an experiment recently in which he offered financial incentives to test subjects to perform well on cognitive tasks. After all, the promise of a fat bonus motivates us to do well, right? Nope: those with the highest monetary incentive performed the same as the other groups.

Anyway, for us regular schmos, receiving a bonus this year ranks just a little lower on our list of concerns than, oh, say, remaining employed. So you’ll be happy to hear that another study finds we value praise more than we do actual pay. Globoforce, which calls itself a recognition strategist, says psychic income is “the need for social acceptance, increased self-esteem and enhanced self-realization.” Rewarding workers with psychic income is, says Globoforce, “more powerful than cash compensation.”

As proof, it offers the following:

  • 2008 White Water Strategies survey, which revealed that acknowledging staff achievements (praising employees) had the same impact on job satisfaction as a one percent increase in pay.
  • 2008 study by the Japanese National Institute for Physiological Sciences found that paying people a compliment appears to activate the same reward center in the brain as paying them cash.
  • 2004 University of Chicago study that found non-cash incentives were 24 percent more powerful at boosting performance than cash incentives.

What do you think? Does praise work better than cash?