Let the evidence speak again! Financial incentives are more effective than we thought

• Author: Jason D. Shaw,Nina Gupta
• DOI: http://doi.org/10.1111/1748-8583.12080
• Published date: 01 July 2015
• Date: 01 July 2015

PROVOCATION SERIES PAPER

Let the evidence speak again! Financial incentives

are more effective than we thought

Jason D. Shaw, Faculty of Business, The Hong Kong Polytechnic University

Nina Gupta, Department of Management, University of Arkansas

Human Resource Management Journal, Vol 25, no 3, 2015, pages 281–293

In this essay, the authors rejoin the debate about financial incentive effectiveness. They (a) briefly review

the state of the literature in 1998, (b) highlight new meta-analytic findings and update conclusions

regarding the financial incentives–performance relationship, (c) address the myth that financial

incentives erode intrinsic motivation, (d) provide explanations for the presumed failure of financial

incentives and (e) offer some concluding thoughts and suggestions for future research.

Contact: Professor Jason D. Shaw, MM, Hong Kong PolyU, Li Ka Shing Tower 1027, Kowloon,

Hong Kong. Email: Jason.Shaw@polyu.edu.hk

Keywords: incentives; motivation; performance

INTRODUCTION

In an editorial nearly two decades ago (Gupta and Shaw, 1998), we outlined the

evidence-based case for the relationship between financial incentives and individual

performance. Drawing on the findings of a meta-analysis of 40 years of financial incentives

research (Jenkins et al., 1998), as well as Cameron and Pierce’s (1994) meta-analysis of a broader

array of rewards, we showed that financial incentives were indeed strongly and positively

related to individual performance and further, that incentives appeared to have no negative

bearing on intrinsic motivation, as a number of influential scientists (e.g. Deci and Ryan, 1985;

Pfeffer, 1998) and other writers (e.g. Kohn, 1993) had suggested previously. The research-based

conclusions at that time seemed convincing, if not conclusive.

We hoped that the cumulative evidence would change the tone of the conversation in the

literature and popular press away for the notion that financial incentives are harmful and

towards a comprehensive exploration of the when and why of the effectiveness of financial

incentives. Instead, the contrarian voices appeared to became louder, more varied and,

discouragingly, more popular. A new generation of speakers and authors emerged, covering

much the same ground, but with renewed vigour and technological sophistication. With a

layperson’s confidence in the tradition of Alfie Kohn (1993, 1998), Dan Pink is a case in point.

His best-selling book (Pink, 2009) and ever-popular internet speeches (nearly 15 million

views at the time of this writing) ignore the accumulated scientific evidence and lambaste

pay-for-performance while purporting to unlock the mystery of human motivation. This is

despite the fact that there is much more scientific evidence now, including primary studies,

qualitative reviews (Fang and Gerhart, 2012; Gerhart and Fang, 2014), and meta-analytic

summations (Cerasoli et al., 2014; Garbers and Konradt, 2014). Not surprisingly, the cumulative

evidence shows that financial incentives relate positively to performance, do not reduce

intrinsic motivation, and, in general, are more effective than we previously thought.

In this essay, we rejoin the debate. In the following paragraphs we (a) briefly review the state

of the literature in 1998, (b) highlight new meta-analytic findings and update our conclusions

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doi: 10.1111/1748-8583.12080

HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 25 NO 3, 2015 281

© 2015 John Wiley & Sons Ltd.

Please cite this article in press as: Shaw, J.D. and Gupta, N. (2015) ‘Let the evidence speak again! Financial incentives are more effective than we

thought’. Human Resource Management Journal 25: 3, 281–293.