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I am working as a freelance contractor. For a long time I have been paid by the hour. This has worked fine and my motivation has never been a problem. Now, I have gotten a deal where I get half of any increased profit that are due to my actions/ideas etc. This is an excellent deal, which would most likely raise my income ten-fold.

My problem, however, is that the deal caused me to completely lose my motivation. Meaning that I have literally not done any meaningful work for them for about three months. Why is that? How could such an excellent deal cause me to loose motivation? I am after understanding this to depth so please only answer if you have specific references.

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deep in your heart you are a communist ;) Get this money! – Hauser Oct 8 '11 at 14:28
Is the deal the real problem ? Maybe the work they give you isn't challenging. Maybe the work environment is not motivating. Maybe it's not the work but a problem in your personal life. Maybe this. Maybe that. Frankly, I think we don't know enough to give you good advice. – Jonathan Merlet Oct 8 '11 at 14:37
@Jonathan Merlet The deal is the real problem. – David Oct 8 '11 at 14:38
@David What happens if your work doesn't cause an increase in their profits? Do you get paid less than when you were being paid by the hour? – Renan Oct 8 '11 at 16:05
@Renan Yes, I would get paid less then, but it would not cause me any financial risk, as I have some basic income besides this deal. – David Oct 8 '11 at 18:03
up vote 26 down vote accepted

As silly as it sounds, getting paid more money actually DECREASES performance for non-trivial tasks (see references). This problem has been studied a lot in behavioral economics, and psychology.

The problem is one of Extrinsic Motivation replacing Intrinsic Motivation.

Intrinsic motivation is your innate desire to do a good job. It's what you feel when you're working on something you want to be working on because you yourself want to see the project completed. Working on hobbies, or learning new non-work related skills are examples of intrinsic motivation.

Extrinsic motivation is when you receive something in exchange for your efforts. When you are paid to do some job, or when you receive a grade in school.

Intrinsic motivation is much more powerful, people who want to do a good job often produce much better work than people who are merely getting paid to accomplish a task. The terrible thing is that our brains are wired to replace intrinsic motivation with extrinsic motivation almost at the drop of a hat.

These people explain what's happening far better than I can:

In Dan Ariely's book The Upside of Irrationality, he talks about pay for performance bonuses and how they actually affect our behavior.

Joel Spolsky also wrote a great article about it, talking about management.

From the article:

"But when you offer people money to do things that they wanted to do, anyway, they suffer from something called the Overjustification Effect. “I must be writing bug-free code because I like the money I get for it,” they think, and the extrinsic motivation displaces the intrinsic motivation. Since extrinsic motivation is a much weaker effect, the net result is that you’ve actually reduced their desire to do a good job. When you stop paying the bonus, or when they decide they don’t care that much about the money, they no longer think that they care about bug free code."

Another example of Overjustification Effect is the Candle Problem:

Great explanation of the Candle Problem at TED:

New article related to this from the peeps at FogCreek about sales commissions:

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This is a magnificent answer! I was starting to doubt whether such competence existed on this site. I will use this information daily for the rest of my life. – David Oct 10 '11 at 17:39
Also the only hint at a possible solution this problem I've been able to find. – Jim Wallace Oct 10 '11 at 17:53

There are two possible reasons that I see:

  • Responsibility as you gain a larger share of the company

    You are no longer ensured of your money. If you don't work properly or something goes wrong they can blame you and cut the money. Of course, this depends on the contract / deal that you have...

    Renan's answer does a very good job on outlining responsibility.

  • The actions / ideas take up much work and have no immediate benefit

    Kind of like "if you solve world hunger you get OVER 9000 gold bars" sounds like an interesting deal, but it takes a lot of effort to do so. You can start with a first task that tries to figure out how we can somehow get more food supply, trying to figure out the different kinds of food is available and so on; even when throwing techniques like GTD at it it is still kind of a life project to get it going.

    Said otherwise, there might be no immediate reward for the work that you do. School is a great example, you get nothing for it for years yet it is important to do so you can get paid more later on.

The deal is the real problem in terms of motivation. It sounds great, but you have to do what it takes...

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Thank you for your answer, but please only answer if you have specific references. – David Oct 8 '11 at 17:21
The original question did state that and motivation is a well-researched field. – David Oct 8 '11 at 19:16
@David: Ah, you made it bold, good point. Still, your situation is not well-researched as far as I know. – Tom Wijsman Oct 8 '11 at 19:22
+1 for Ova 9000 reference :) – Xander Lamkins Oct 8 '11 at 23:30

You're not sharing profits, you're sharing responsibilities.

When you were working for a known salary, you could focus on your own shit and not give a damn about the company's problems. Feeling demotivated today? That's fine! Slow down your pace knowing the reward by the end of the month will always be there waiting for you. The company is not doing well? That's not your problem. You have the right to be paid anyway.

Then you got a new deal.

From now on you're going to be rewarded according to the profit 'you' generated. That's a big change.

It means you won't be rewarded for doing your job, completing assigned tasks. You'll be rewarded for doing a good job, a job that delivers actual results in the profits. You got yourself more responsibilities than the associates but you don't earn what they do. Do you think the profit share of the associates are anyhow related to their actions? Bad decisions may contribute to a smaller cake but it doesn't change the size of their slice. You're punished for your bad results but half of your good ones belong to the company anyway.

  • Taking a nap?
  • Organizing your desk?
  • Taking care of your personal problems?

None of these actions are contributing to your month revenue. Apparently, at least.

  • Do I have enough time to finish this project?

Not only are you a part of the company's financial situation but you also don't have a word among the associates. You can no longer focus on doing a good job, doing what you like, now you have to adapt it to whatever gives the most immediate results to the company. It'll be too hard to prove it was because of you otherwise.

Now unless you're already big shit in the company, that's just an awful deal. Before agreeing to the new terms, a drawback in personal matters wouldn't reflect in reduced budget by the end of the month. You could actually focus on getting it out of your way.

Every. Second. Counts.

You just don't know if you can take it slow. The next month you'll be working with reduced budget to preserve your lifestyle, handling that personal matter and still trying to finish some great idea to share the profits.

Can you really isolate the profit 'you' generated?

There are a number of ways your company can lie about who was responsible for the profit increase. How well do you know your company to tell they're not trying to diminish the results of your work to the most they can? Now unless you have access to financial transactions inside your company, you're left with trusting their word. It doesn't matter if you're friends with them.

Maybe you had this wonderful idea that is going to solve a lot of problems at the same time. But maybe they were "already working on that". Sorry, we can't pay you this time. That was Joe's idea.

Nothing personal. It's just business.

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+1 for "Nothing personal..." (and your elaborated answer!) – MostlyHarmless Oct 8 '11 at 21:21
+1 This is a useful answer. Although it doesn't have references, I believe there are tons of popular books that can back this up. (Although I'm not the OP, I'm not keen on popular books as references, as all too often they are based on rather weak references, too...) I had the same perspective about the ability to identify the incremental profit. Even in areas that I know quite well, with very quantitative people, it can be hard to tease out individual contributions. Moreover, expected payoff for potential pursuits is hard to estimate. So, ex post or ex ante, it's challenging. – Iterator Nov 18 '11 at 1:12

As Tom noted, solving world hunger is a really long term goal. I think a lot of the techniques for long term goals would help you regain some motivation. Some ideas are here. Searching for long term goals or motivation will generate a ton more ideas.

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As it seems, this is the most specific answer I can expect. It also has a reference and tips on how to find references so I will accept it, but I might accept a different one if something better comes along. Thank you very much for your effort Jeanne! – David Oct 9 '11 at 17:03
+1 for searching for an actual solution instead of the reasoning behind it. – Tom Wijsman Oct 9 '11 at 17:06

Maybe earning more money doesn't make you feel better.

Yes, I know, it sounds stupid, who doesn't like getting more money? Nobody. You get more money, you get more good life standart, you get more social benefits and etc. But some people are simple. And in their life, they have a feature called BALANCE.

Let me I try to explain with an example; I'm a simple person. My first job experience was in a finance company (in IT department.). Their place is out of the town. In my first day, I went to some random restaurant. In that restaurant you can smell the foods, you can choose the food how much you want, you can see the place where they cook. I take my lunch, sit a table, had a lunch. That was delicious. And I went every day that restaurant for lunch until quit my job. Maybe there were a lot of better restaurant rather than what I choosed, but didn't matter, never will matters. Maybe getting lunch in another restaurants was earn me more experience about the restaurants, maybe I could like one of them but I don't want it. I was happy with my first restaurant. That's the point.

As you can see, I can't speak or write in english very well but I hope I can tell what I am try to explain you.

My second opinion, when you earn less, you focus your job for getting more money. Now, you have more money. And looks you lost your excitement for this job. If there is a situation for you like that, try to get more excitement for getting more more money.

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Thank you for your answer, but please only answer if you have specific references. – David Oct 8 '11 at 17:22

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