Evidence-Based Management: The Science Side of Motivation
By Carl Robinson, Ph.D., copyright 2006
Contrary to popular belief incentive pay has limited positive effect on performance of employees or executives. According to Jeffrey Pfeffer and Robert Sutton in their must read book, “Hard Facts, Half-Truths and Total Nonsense: Profiting from Evidence-Based Management” (available through my book recommendation’s webpage – see below) “individual incentives and highly differentiated reward and recognition distributions make more sense when performance can be objectively assessed and when performance is mostly the result of individual effort rather than the product of interdependent activity.” For example, jockeys and golf pros perform better when pay is contingent on performance.
Pfeffer and Sutton make a strong case based on solid research that many of the management practices that executives use are based more on myths and unsound anecdotal evidence than hard facts. They investigated management practices from compensation systems to strategic planning to addressing the queston: Are great leaders in control of their companies? In this briefing, I'm only highlighting the myths and facts around the use of incentives to motivate employees.
A Watson Wyatt 2003 – 2004 survey of 1,700 high-performing employees (as identified by their employers) from 16 organizations found that these top performers rated a desire to maintain a positive reputation as the most important factor in their motivation. Being appreciated came second, a belief that their work is important third, interesting assignments fourth, and expecting a significant financial reward 9th of 10 items.
Another "survey of 205 executives from diverse industries found that 68 percent reported their companies had executive bonus plans because senior management believed that such rewards would motivate executives. These same executives reported, however, that they did not make daily business decisions based on how such decisions would affect their bonus or those of their people" according to Pfeffer and Sutton.
A highly regarded executive compensation consultant recently told me “that, with the exception of most sales people and a few executives with a focused mercenary mentality, you won’t get much, if any, ‘lift’ out of compensation no matter how you structure it. Lift comes from great work to do, liking your boss, being treated with respect, knowing you can trust, pride in the company, ability to see a future for self, and other less important things. It is through these that the 2-3x multiple pulls through (where the high performer delivers 2-3 times the results of an average performer). . . If the compensation system is faulty, it interferes (sometimes completely) with all the things that give lift (“soft stuff” in the minds of many CEOs and CFOs). Financial incentives do not drive company performance. They are necessary for a variety of reasons, but they are not the drivers.” Other reasons that drive performance, according to the consultant, include cost control and ris k management. I would add enthusiastic self-aware and self confident (without being arrogant) leaders worth following, innovation and quality products and services.
Pfeffer and Sutton suggest that "to obtain great employee motivation, instead of signaling people through lavish and contingent financial rewards that they are working mostly for the money, let them see and experience other benefits from their work, such as being part of a supportive community (people derive satisfaction from their social relationships in the workplace), doing work that helps benefit others and that their work enhances their reputation (e.g., working for Google has great career cache, or that they are working on life saving or enhancing technologies – not just selling sugar water). " An executive at Philips Medical Systems (client company of mine) put it to me succinctly recently, “You need to humanize corporate goals and objectives. Most employees aren’t motivated a bit by the goal of enhancing shareholder value.”
Companies like Southwest Airlines who talk about bringing people together are good examples according to Pfeffer and Sutton. "Southwest's low fares, which are possible only because of the low costs that come from a productive workforce, becomes not just some competitive strategy but something that enables customers to see their family and friends more often. The Men’s Warehouse encourages its employees to help each other become better people than they ever thought they could be, even as they describe their job as helping men look better, feel more confident, and be more successful in their lives. DaVita which runs kidney dialysis centers, shows pictures of its patients and has a video segment in which dialysis patients and their families, and work colleagues say, 'thank you DaVita,' for keeping the person alive."
The bottom line - Pfeffer and Sutton recommend that you focus on the celebration of the achievements and the spirit of camaraderie, rather than the money. Or as Alfie Kahn (noted compensation researcher) said, “Pay people well, pay them fairly and then do everything you can to make them forget about money.”