Do They Really Appreciate The Bonus?

Do the bonuses that small businesses award their employees impact motivation and morale? To answer this question, we turned to the book “Amazing Decisions” by Dan Ariely. In it, he defines two realms that we operate in – that of social norms and that of market norms. Both are valuable, both have their place, and both offer insight into our decisions, motivations, and how that bonus is perceived.

Defining the Terms: Social Norms and Market Norms

Imagine these two worlds as parallel dimensions in your everyday life. Social norms are the unwritten rules that govern our interactions with others. Be kind, be generous, behave the way your friends do…these norms are driven by intrinsic motivations, such as goodwill, trust, and a sense of belonging. If your friends believe helping others is important, you’re more likely to both agree with them and help them with their big move at the end of the month. If you do help and they provide pizza when the truck is unloaded, it’s likely you’ll appreciate that gesture.

Market norms, in contrast, are based on transactions, where extrinsic motivations like money, goods, or services come into play. If that same friend offers you $15 when the moving truck is empty (the value of half a pizza) you’re less likely to bask in the warm fuzzies you had expected from helping a friend. It’s not even minimum wage!

Ariely’s research shows that in business, social and market norms often mix, and when they do it can lead to unexpected and sometimes problematic outcomes as in the example above. How then do we define the social norms in the work environment, and how do we combine them with the inevitable market norms in the workplace? Afterall, except for the very wealthy, most people work for money and often attach their “worth” to their compensation. 

Applying the Insights to Life: The Power of Compensation

Ariely’s experiments with payments and rewards illustrate the complex interplay between these norms. For instance, in one experiment he randomly split the participants into three groups. For performing a simple, repetitive task over three minutes, one group was offered a small reward (ten cents), the second group was offered a larger reward (four dollars) and the third group was offered no reward at all. What happened?

Maybe unsurprisingly, those offered the small reward performed the task fewer times on average than the other two. However, the group that were not paid performed the task the most, having perceived it as a favour to the experimenters. The result with this third group was driven by social norms, not market. Performing the same task as a favor resulted in the best outcome, driven by social norms. Intriguingly, when he tried to pay with candy, the amount given became irrelevant until a price tag was attached to the candy, promptly switching the norm back to market norms.

Splitting the Check: A Lose-Lose Scenario

When you’ve enjoyed a restaurant meal with a friend, who pays? While splitting the bill in social gatherings is a common practice, Ariely’s research shows that this approach often leaves everyone feeling like they lost out. Paying for the meal detracts from the overall enjoyment, but “diminishing sensitivity” means that paying for two meals doesn’t doubly detract from the enjoyment. Particularly when the social norms come into play, allowing us to feel good about covering someone else’s expense. At the same time, your friend just got a free meal – score! Instead of splitting, saying “I’ve got this, you get the next one,” maximizes enjoyment for both parties and reinforces the power of social norms in our decisions.

Gift-Giving: Strengthening Social Ties

The act of giving gifts can be a powerful way to reinforce social bonds. Both the giver and the recipient experience the joy of gifting. However, the choice of the gift matters. Giving cash is risky, as it can be perceived as too much or too little. A gift card, while it may demonstrate knowledge of the recipient’s interests, is not as beneficial as non-monetary gifts.

Non-monetary gifts, despite the risk of not always hitting the mark, are often the most appreciated. They go beyond wealth transfer and serve as symbols of the relationships we cherish. Ariely’s research shows that people tend to enjoy gifts that involve art, electronics, or memorable experiences.

Bonus or a Half a Pizza? Applying the Insights at Work

These findings from “Amazing Decisions” have practical implications in the workplace. Ariely emphasizes that social rewards are motivational. Work should not be seen as a punishment endured for money but as an opportunity for inspiration and intrinsic motivation. But striking the right balance between market and social norms in a work environment can be challenging.

Here’s another example: when given a choice between a monetary and non-monetary reward of equal value, individuals often choose cash. However, when asked which option would bring them more satisfaction and enjoyment, they lean toward non-monetary rewards. Cash incentives may have diminishing returns and can even decrease performance in complex tasks. In contrast, socially-based rewards tend to improve performance without the risk of performance dropping below the starting point when these social effects wear off.

Ariely’s research provides numerous examples of studies that support these findings and underline the importance of understanding the dynamics of social and market norms.

The Challenge of Reverting to Social Norms

One crucial insight from the book is that it’s relatively easy to transition a social relationship into a market one, but the reverse is challenging. For instance, if you start paying your children to do chores, they might come to expect the financial reward as the new norm. This also applies to scenarios like daycare, where introducing fines for late parents may turn it into a transaction, eroding the sense of responsibility for timeliness that comes with a social contract.

We’ve invested countless coaching hours into the conversation with leaders where they’re frustrated (baffled, hurt, angry) that, despite the extra money they’re offering to their employees in the form of bonuses or commissions, the rewards are never enough, are not appreciated, and/or the motivational impact is fleeting. As often as we’ve heard, “I appreciate the free lunches at work on Wednesdays,” we’ve also heard, “They think they can buy me off with a couple slices of pizza.”

Leaders need to clearly indicate whether they are operating in the realm of social or market norms. The more guidance employees have on why things happen as they do, the more likely the actions will yield the desired results. 

And the Holiday Bonus?

While you can’t undo a holiday bonus, clear communication about compensation plans and motivations is key. Providing long lead-time for changes and consulting with legal experts can prevent misunderstandings.

“Amazing Decisions” offers profound lessons about the influence of social and market norms on decisions and relationships. It underscores the importance of applying these norms thoughtfully, from gift-giving to the workplace, emphasizing that choices are about more than wealth transfer – they reinforce the social ties enriching our lives.

Bellrock offers business leaders a unique perspective on strategic challenges. We also translate that perspective into actionable plans that improve results and train managers on execution. Our purpose is to develop life-long relationships and raving fans. If you found this article valuable, don’t be stingy. Share