New study questions executive bonus culture

Research conducted by Dan Ariely for his new book has called the conventional practice of offering large bonuses for high-performing executives into question.

In an extract from The Upside of Irrationality published on the TED website, the writer reveals how he and several colleagues attempted to explore the relationship between bonuses and performance by carrying out a study in India.

Participants were asked to carry out an array of simple tasks based on concentration and skill, such as recalling a series of numbers and throwing tennis balls at a target, with different bonuses offered to different players.

The researchers found that the group offered the highest bonuses for completing the tasks performed the worst, while those hoping to receive a medium-sized payment were no better than the group playing for the lowest amount.

According to Mr Ariely, the results suggest that "financial rewards are often a two-edged sword", as the prospect of a large bonus can become counter-productive and damage performance.

He commented: "Higher bonuses may not only cost employers more, but also hinder executives in working to the best of their abilities."

Ariely is a professor of behavioural economics who published Predictably Irrational: The Hidden Forces that Shape Our Decisions in 2008.