Bonuses can lower self-set goals and reduce performance, experiment suggests

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Financial bonuses are often used to motivate employees to meet targets and boost productivity. But do they actually work? New research from Tilburg University suggests these incentives can sometimes have the opposite effect. Employees who set their own goals often perform better without a financial bonus.

Many organizations use bonuses to improve performance. At the same time, they increasingly allow employees to define their own targets. This can increase autonomy and engagement. However, this combination does not always work well, according to research by Víctor González-Jiménez, Patricio Dalton, and Charles Noussair. People who are more sensitive to losses, in particular, tend to set more cautious goals when money is at stake. The paper is published in the Journal of Economic Behavior & Organization.

Avoiding losses

"People are loss averse," says González-Jiménez. "This means they feel worse about losing a monetary amount than they feel good about gaining the same amount." This tendency plays an important role in how people set goals. Without a bonus, individuals often set more ambitious targets. They anticipate that they want to avoid falling short of their goal, which motivates them to work harder.

Bonuses lead to lower targets

Once a bonus is tied to achieving a goal, behavior changes. The risk of missing out on the bonus feels like a loss. As a result, people are more likely to choose safer, less ambitious goals. This directly affects performance. In an experiment, participants without a bonus set higher goals and performed better than those who could earn a bonus.

"A bonus increases the pressure to succeed, but also makes people more cautious," the researchers explain. "As a result, part of the motivation that comes from the goal itself disappears."

Experiment confirms the effect

In the experiment, participants completed a task that required effort. One group set their own goals without any financial reward, while another group received a bonus if they reached their goal.

The results were clear: effort and performance were significantly higher without a bonus. According to the researchers, participants who were more sensitive to losses performed especially well without bonuses. Notably, this approach even outperformed systems where people are paid a considerable amount per unit of performance.

"The study shows there is a psychological tension at play," says Dalton. "On the one hand, ambitious goals can motivate employees because they want to avoid falling short. On the other hand, the fear of failure—amplified by financial incentives—can lead to safer, less challenging goals."

Intrinsic motivation remains intact

The findings challenge the common assumption that financial incentives always motivate. In situations where people set their own goals this might not be the case. By not tying money to goals, the intrinsic motivation of the goal remains intact and performance improves.

For employers, this is an important insight. The research shows that a system without bonuses can sometimes be more effective, and cheaper.

Publication details

Víctor González-Jiménez et al, Bonuses and loss aversion, Journal of Economic Behavior & Organization (2026). DOI: 10.1016/j.jebo.2026.107438

Journal information: Journal of Economic Behaviour and Organisation

Provided by Tilburg University