Saturday, 6 March 2010

Pay peanuts, get monkeys. Pay too much and create them.

The old adage about "pay peanuts, get monkeys" suggests that the quality of work - and in fact products / services - is directly related to the amount we pay. If we pay more for something then logic would say we are getting better materials, more expertise (who can command a higher day rate) and more time - all of which combine to provide a superior result.

But where does this end - when is more money too much money.

Well it would seem there can be a limit. In research carried out by Dan Ariely - professor of behavioural economics at Duke and author of Predictably Irrational: The Hidden Forces That Shape Our Decisions - it was found that offering more money to individuals to complete a task can actually decrease performance.

In a number of tests which were designed to replicate everyday work - requiring attention, memory, concentration and creativity - those offered a large financial incentive for completion fared consistently worse than those with medium or low incentives.

This research has been reported upon in conjunction with discussions around the benefits (or not) that large bonuses provide for bankers - suggesting that the size of the bonus may have little effect on their delivery and in fact may ultimately be detrimental. Counter arguments have put forth that these astronomical bonuses are less about performance and more about recruitment and retention of top talent.

Whatever the reason for the bonuses and their impact on actual performance, what interested me is that we see this type of effect within loyalty programmes as well - but possibly for different reasons.

It is well known and documented in the book Scoring Points: How Tesco Continues to Win Customer Loyalty that Tesco originally trialled 1% and 2% back in value and found no real difference in the loyalty effect - so opted for 1%. This suggests that at these relatively low values, consumers aren't additionally motivated. However, when they were researching Club Card deals, which effectively gives 4 times the reward value at partners, a lot of time was spent getting the wording right as consumers initially felt this was too good to be true.

This "too good to be true" effect is also visible in other programmes. In recent tests we carried out offering varying bonus point values for the same behaviours we actually saw a drop off in responses with a larger bonus point value. It would appear that customers felt the reward value was too much - maybe thinking that there was a hidden agenda and so was too good to be true.

All programmes need to be tuned to ensure the best value is being achieved, both in terms of how much value is given back and what behaviour change is exhibited. Too little and the value is simply wasted on little or no change - however too much and you'll see the same effect. This is mirrored in rewards with rewards which are too low in value - too easy to reach - risking a decrease in ongoing participation.

Whilst it may be right to say pay peanuts and get monkeys - and there is actually research to prove this - it would appear that this can equally apply if you pay too much, with the recent banking crisis seeming to back this up.

Whether it is money or points however, the same rules would appear to apply - under rewarding may simply recruit monkeys, but over rewarding could actually be helping to create them.


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