Performance-related pay often does not encourage people to work harder and sometimes has the opposite effect, according to new research due to be unveiled at the London School of Economics and Political Science.

An analysis of 51 separate experimental studies of financial incentives in employment relations found overwhelming evidence that these incentives may reduce an employee's natural inclination to complete a task and derive pleasure from doing so.

'We find that financial incentives may indeed reduce intrinsic motivation and diminish ethical or other reasons for complying with workplace social norms such as fairness. As a consequence, the provision of incentives can result in a negative impact on overall performance,' said Dr Bernd Irlenbusch from the LSE's Department of Management.

The research concludes that companies should be aware that the provision of performance-related pay could result in a net reduction of motivation across a team or organisation. How to design effective workplace incentives is set to be a hot topic for behavioural economists in the coming years.

The results of the study, by Professor Sam Bowles of the Behavioural Sciences Programme at Santa Fe Institute, will be announced by him and discussed at an innovative workshop jointly organised by LSE, UCL and the University of Nottingham this month.

"By assembling highly credited experts with different backgrounds, this workshop provides one of the rare opportunities for cross-fertilisation between theory and practice," added Dr Irlenbusch.

The initiative is being funded by the Sixth Framework Programme of the European Commission.