For decades, businesses have relied on a simple assumption:
If you want people to perform better, reward them.
Bonuses, commissions, rankings, and performance-based pay are treated as common sense. The logic seems obvious—tie rewards to outcomes, and effort will increase.
But behavioral science tells a very different story.
When tasks require creativity, judgment, or problem-solving, incentives often reduce performance rather than improve it. This is not a philosophical claim. It’s a well-documented empirical fact.
To understand why, we need to look at how motivation and stress actually work.
The Candle Problem
Consider a classic experiment in psychology known as the candle problem.
A participant is given a candle, a box of thumbtacks, and some matches. The task is simple: attach the candle to the wall so the wax doesn’t drip onto the table.
Most people try to thumbtack the candle directly to the wall. That fails. Others melt the candle and try to stick it. That fails too.
Eventually, many people realize the solution: empty the box of tacks, tack the box to the wall, and place the candle inside it as a platform.
The obstacle isn’t intelligence—it’s functional fixedness. We tend to see objects only in terms of their familiar use. The box is seen as a container, not as part of the solution.
When Incentives Make People Slower
Researchers later used this same problem to test the effect of incentives.
One group was simply timed to establish an average. Another group was offered monetary rewards: a smaller reward for fast performance and a larger reward for being the fastest.
The result was striking.
The incentivized group took, on average, three and a half minutes longer to solve the problem.
This finding has been replicated repeatedly over nearly four decades. Incentives designed to improve performance instead impair it—at least for certain types of tasks.
Why?
Performance Follows a Stress Curve
Human performance follows an inverted U-shaped curve.
- Too little stress leads to boredom and disengagement
- Too much stress leads to anxiety, tunnel vision, and burnout
- The optimal zone lies in the middle—moderate arousal without pressure overload
This relationship is well established in psychology. But here’s the crucial detail:
The more complex the task, the lower our tolerance for stress.
Simple, rule-based tasks can benefit from pressure and incentives. But creative, conceptual, or ambiguous tasks are far more sensitive. Small increases in stress can push performance past the peak and into decline.
The candle problem is exactly this kind of task.
Why Incentives Create Harmful Stress
Incentives don’t just motivate behavior. They also introduce psychological stress, and that stress has a very specific structure.
It comes from two elements:
- Uncertainty about future outcomes
- The desire to control those outcomes
An incentive creates a future-dependent result: Will I get the reward or not?
Once the reward is introduced, attention shifts from the task itself to the consequence of success or failure.
Because the reward is desirable, people attempt to control the outcome. That effort generates stress.
This stress doesn’t feel dramatic—but it quietly consumes mental bandwidth.
Stress Steals Cognitive Resources
Creative problem-solving requires:
- Cognitive flexibility
- Peripheral awareness
- The ability to reframe assumptions
Stress does the opposite.
When people are under outcome pressure, attention narrows. Thoughts loop around performance, timing, and consequences. Instead of exploring the problem space, the mind fixates on results.
In the candle experiment, incentivized participants weren’t less capable. They were more mentally occupied. Part of their cognitive capacity was spent worrying about the reward rather than noticing the box as a possible solution.
The incentive didn’t sharpen thinking—it crowded it.
Why Incentives Sometimes Work
In a variation of the experiment, the thumbtacks were removed from the box and placed separately.
This time, the incentivized group performed better.
Why?
Because the task became obvious. There was a clear path and a clear goal. Rewards narrow focus, and for simple tasks, that’s helpful.
Incentives work well when:
- Rules are clear
- Solutions are obvious
- Execution matters more than insight
But modern knowledge work rarely fits this pattern.
The Nature of Modern Work
Across industries and economies, routine, rule-based work is increasingly automated or outsourced. Software can do it faster. Low-cost providers can do it cheaper.
What remains is work that requires:
- Creativity
- Judgment
- Conceptual thinking
- Problem-solving under ambiguity
These are candle problems.
And for candle problems, traditional incentive systems don’t just fail—they actively interfere.
The Evidence Is Clear
Study after study shows the same pattern:
- For mechanical tasks, higher rewards improve performance
- For cognitive tasks, higher rewards often degrade performance
This effect appears across cultures, income levels, and organizational contexts. It has been demonstrated by economists, psychologists, and behavioral scientists—including research sponsored by major financial institutions.
Yet many organizations continue to design motivation systems as if none of this were true.
A Better Model of Motivation
The science of motivation points toward a different operating system—one built around intrinsic motivation.
People perform best when they are driven by:
- Autonomy – control over how and when work is done
- Mastery – the desire to improve at meaningful skills
- Purpose – the sense that work contributes to something larger
This isn’t idealism. Organizations that emphasize these elements consistently report higher engagement, stronger performance, and lower turnover.
The Core Mismatch
There is a profound mismatch between what science knows and how businesses operate.
- Incentives work—but only in narrow conditions
- For creative work, they often increase stress beyond the optimal zone
- Stress consumes cognitive bandwidth and blocks insight
If we want high performance in the 21st century, the answer isn’t better carrots or sharper sticks. It’s creating conditions where people can think clearly, explore freely, and care deeply about their work.
Fix the mismatch, and we don’t just improve performance.
We solve more candle problems.
And maybe—we change the world.
Natalie Feng 
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