Why are we using remuneration systems that seriously should have gone out of style with the end of the industrial age, or that are commonplace in sweat shops in economies that have no respect for human rights? With research showing that more money doesn’t bring better performance, isn’t it time we stopped handling talent like workhorses and started treating them like humans? By DAVE DUARTE and MANDY DE WAAL.
Conventional business wisdom told the world that if you owned a mega widget factory and had a vast sea of workers churning out widgets, the carrot and stick approach worked really well. Human resource management was all about getting the balance between fear and reward just right to ensure the production line ran smoothly, quotas were being met and Avarice Inc. was making and selling enough thingamajigs to ensure good shareholder returns.
Minions, who performed well, showed incredible loyalty and stuck with the corporation or family of board members, climbed the ranks and got more money than the worker drones, creating a future path to which all aspired.
It’s not a bad formula for management success if you have a factory based in the UK somewhere around the 18th century, or running a sweat shop somewhere in South East Asia. But if you’re a nomadic leader in a digitally distracted age, where intelligence is one of your greatest assets, you rely on higher cognition and problem solving to drive your business forward, and you are incentivising people purely on pay, you’ve got to ask yourself what you’re doing using a management construct better suited for heavy industry hundreds of years ago.
Problem is, for some reason, business still buys into the notion that if you reward people really well financially, they will work harder and even harder, as if there is a direct correlation between the size of the carrot and the productivity yield.
Perhaps on a galleon destined for Gaul, but let’s look at what happens when that equation is applied to the real world, shall we?
Enter Dan Ariely (Duke University – Fuqua School of Business); Uri Gneezy (University of California San Diego – Rady School of Management); George Lowenstein (Carnegie Mellon University – Social and Decision Sciences); and Nina Mazaar (University of Toronto – Rotman School of Management). You may remember that Ariely was in South Africa recently to speak at the 2011 Discovery Invest Leadership Summit about behavioural economics.
The four well-regarded academics conducted a series of experiments to test the validity of the payment-based performance models that are so commonplace in workforces across the world. The prevailing business logic is that management, sales and a wide variety of workers are motivated to perform better with by performance-based compensation.
In their paper Large Stakes and Big Mistakes, the academics eviscerate this thinking by proving that higher rewards don’t always bring better performance. In one experiment which was conducted in a marginalised village in India, six simple tasks were given at varying incentive levels which ranged from about four rupees, to 40 rupees and a high of 400 rupees. The highest incentive of 400 rupees was roughly equivalent to average earnings for a month in the village.
The tasks that people had to do were physical actions as well as assignments that involved memory or reasoning. The outcome of the experiments were surprising in that at lower incentive levels people did incredibly well and were able to show good sustained performance, however at the highest incentive level of 400 rupees the respondents “choked” and didn’t perform as well.
In their study, the researchers say: “Many institutions provide very large incentives for tasks that require creativity, problem solving, and memory. Our results challenge the assumption that increases in motivation would necessarily lead to improvements in performance.
“Our experiment suggests, however, that one cannot assume that introducing or raising incentives always improves performance. Beyond some threshold level, it appears, raising incentives may increase motivation to supra-optimal levels and result in perverse effects on performance. Given that incentives are generally costly for those providing them, raising contingent incentives beyond a certain point may be a losing proposition,” the authors write.
Now that you know that compensation isn’t the silver bullet for driving performance, it begs the question what is? Daniel Pink who is the author of four best-selling books about the world of work has some of the answers. Pink’s books include the long-running New York Times bestseller A Whole New Mind and “Drive” which has been translated into 31 languages. Drive: The Surprising Truth About What Motivates Us investigates 50 years of behavioural science to overturn what we’ve always taken for granted about how people work in business.
Pink says that the science behind what motivates humans is a little surprising, if not freaky, and he’s right. “We are not as endlessly manipulable and as predictable as you would think,” he says in a talk recorded at RSAnimate. Pink highlights two studies that call into question the notion that if you reward something you get more of the behaviour you want, and if you punish it you get less of it.
The first is a Massachusetts Institute of Technology study where students were asked to memorise strings of digits, solve word puzzles, spatial puzzles and to do physical tasks like throwing a ball through a hoop. Like the Ariely research, students were rewarded financially with small, moderate and big cash rewards. “We’ve seen this movie before,” Pink says in the video. “It is essentially a typical motivation scheme within organisations.”
This is what was uncovered in the MIT study. As long as the task was mechanical, expectations were fulfilled and higher pay meant better performance. “But once the task called for even rudimentary cognitive skill, a larger reward led to poorer performance,” Pink says.
In an interview with Seth Godin, Pink explains why this is the case: “Too many people harbour the misguided belief that humans are motivated solely by biological urges and by carrots-and-sticks. Those two drives matter, of course. But we’ve neglected that humans also have a *third* drive — to direct our own lives, to get better at stuff, to make a contribution. Here’s an example. This weekend somebody’s going to be practicing the clarinet — even though it won’t get him a mate (the first drive) or make him any money (the second drive). Why is he doing that? Because its fun, it’s interesting, it’s meaningful. Because the act is its own reward.”
Pink’s advice to the world of work, in the face of overwhelming evidence, is that when it comes to reward systems, they’re getting it all wrong. “Stop treating people like horses and start treating them like human beings. Instead of trying to bribe folks with sweeter carrots or threaten them with sharpen sticks, how about giving them greater freedom at work, allowing them to get better at something they love, and infusing the workplace with a sense of purpose? If we tap that third drive more fully, we can rejuvenate our businesses and remake our world.”
But the motivation for top management isn’t only to treat people as if they are human, there’s a bottom line incentive for leaders too. In their Harvard Business Review blog post called Four Motivation Mistakes Most Leaders Make, McKinsey’s Carolyn Dewar and Scott Keller say money is the most expensive way to motivate employees, but still remains many leaders’ first choice.
The author and contributor of Beyond Performance: How great organisations build ultimate competitive advantage says: “Our experience and numerous studies, however, show that big bonuses are less effective than smaller, unexpected gestures, because gifts create a relationship while bonuses are purely transactional.”
See. Isn’t that what you knew all along? It’s the small gestures and caring thoughts that really count. DM
Nomadic Leadership is an ongoing series by Mandy de Waal and Dave Duarte that runs exclusively in iMaverick & Daily Maverick.
- Engaging employees is about more than just financial incentives, in the Guardian;
- How to Motivate People: Skip the Bonus and Give Them a Real Project in Fast Company; and
- Four Motivation Mistakes Most Leaders Make at the HBR Blog Network.
- Watch Dan Pink's talk on Drive at TED.com; and
- Watch Dan Pink talk about Drive: The surprising truth about what motivates us.