If you’ve ever been sucked into a conversation about compensation—yours or anyone else’s—you’ve probably heard the seemingly never-ending debate around what motivates people most. While there are many ways of rewarding good behavior, are commissions and other extrinsic financial rewards all we’ve got to work with here?
Where does this philosophy of rewarding good behavior come from and is it really the most effective way to invigorate and motivate employees?
Most of us who have survived an economics course or two are familiar with the concept that “In a perfect world of perfect information and low transaction costs, the parties will bargain to a wealth-maximizing result.”
Actions, this theory suggests, is derived by human calculation to do what will most benefit oneself while minimizing harm.
Drive: The Surprising Truth About What Motivates Us
The problem with this idea, discusses Daniel H. Pink in his book Drive: The Surprising Truth About What Motivates Us, and expressed by Daniel Kahneman, the psychologist (yes, psychologist) who won the Nobel Prize in economics in 2002, is that humans aren’t always rational calculators of economic interest. In fact, in most cases, our decisions aren’t driven solely by a wealth-maximizing result.
In short, Kahnemen and others in the field of behavioral economics concluded that the greatest shortcoming of this theory is that it focuses almost entirely on economics and forgets to take into account the human.
In his New York Times Bestseller, Pink says “For as long as any of us can remember, we’ve configured our organizations and constructed our lives around its bedrock assumption: The way to improve performance, increase productivity, and encourage excellence is to reward the good and punish the bad. Then Pink embarks on a 217-page argument debunking this myth
Debunking the stick and carrot approach to motivation
In his in-depth analysis of motivation, Pink unveils the disconnect between what science has proven about the “stick and carrot” approach of motivation (the concept that good behavior can be driven by rewards and bad behavior can be discouraged by punishment) and what businesses use in their regular compensation structures.
In his book, Pink cites a number of fascinating studies testing the effect of reward on performance, including one funded by the U.S. National Bank. The findings, said Pink, were—to the researchers—“really odd. In scientific terms, it was akin to rolling a steel ball down an inclined plane to measure its velocity—only to watch the ball float into the air instead,” because they went against everything people believed about behavioral economics. In these experiments completed by economists, psychologists, and sociologists alike, they found that in almost every case, a larger reward led to poorer performance.
Algorithms, rewards, and extrinsic motivators
There are cases in which rewards—bonuses, incentives, commission or salary increase—lead to higher performance, but according to the studies, this only works for tasks that are purely algorithmic. In other words, if the task had one direct formula to a fixed outcome requiring no creative thinking or innovative problem solving then a reward can improve performance.
The problem is that most jobs today are heuristic, meaning they require a person to “experiment with possibilities and devise a novel solution.” In fact, a recent study by the consulting firm McKinsey & Co estimates that job growth in the United States now comes from only 30% algorithmic work and 70% heuristic work.
This is because the repetitive tasks that take no creative thought can typically be automated by machines and computer programs, or can be inexpensively outsourced overseas. However, creative, intellectual labor is still in high-demand because, quite simply, it cannot be replicated or automated.
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What’s the secret? Motivating employees without financial rewards
In order to create an environment of intrinsic motivation in which employees perform at high levels without use of extrinsic rewards, an organization must encourage a culture of autonomy, mastery, and purpose.
It’s actually not as complicated as you may think.
Employees within an organization perform at high levels when they are intrinsically motivated—when the freedom, challenge, and the purpose of the undertaking itself (as opposed to extrinsic rewards which actually diminish performance) are the main motivators.
In a recent study by Cornell University in which they studied 320 small businesses, those organizations that had a high level of autonomy (control over tasks, when to do them and how to do them), grew 4X faster than control-oriented firms and had 2/3 less turnover.
While it may seem like a huge undertaking, creating an environment in which employees are intrinsically motivated through autonomy, mastery, and drive is actually as simple as changing the way your managers lead their teams.
Implementing intrinsic motivation in your organization
In his book, Daniel Pink defines three things that drive intrinsic motivation:
Autonomy: Having autonomy over tasks (what they do), time (when they do it), and technique (how they do it).
Mastery: Becoming better at something that matters and making progress in one’s work or personal development.
Purpose: Making a contribution and being part of a cause greater and more enduring than oneself.
In order to successfully drive intrinsic motivation within an organization, company leaders should find ways to create an environment for autonomy, mastery, and purpose.
The task of redesigning company culture to support autonomy, mastery and purpose can feel like a large, complicated risk. The reason organizations are likely to rely on the stick and carrot approach of compensation is because it seems like a more straightforward way to define specific goals and outcomes. Organizations feel more comfortable when they feel like they’re in control of the actions of their employees.
However, this line of thinking is the reason why according to Gallup’s extensive research on employee engagement, more than 50% of workers in the United States are unengaged and why 20% of employees are actively disengaged*. The cost of this disengagement, according to Gallup, is nearly $300 Billion a year in lost productivity.
Intrinsic motivation starts with company leaders
Intrinsic motivation begins with teaching leaders how to lead in a way that encourages a team environment of autonomy, mastery, and purpose. In this high-motivation environment, leaders should:
- Know employee’s long-term goals and have an active plan for helping them achieve those goals within the company
- Consciously strive to delegate in order to expand team members’ talents and skills (and letting employees have say in those tasks)
- Lead in a way that openly allows employees to complete tasks in “their own way,” instead of micromanaging tasks to be completed in ways designed by the leader
- Openly communicating with team members about how their work contributes to the organization’s overall goals
Are you ready to take the leap?
Managers are the biggest driver of employee engagement or disengagement. That is because they are typically most involved in whether or not an employee feels like he or she has autonomy, mastery and purpose within a company.
Mastering important leadership techniques that foster these values while leading a productive team are typically unintuitive, however they can be easily learned and practiced with the right training and coaching.
Look for leadership development programs that encourage leaders to actively develop of employees, help employees achieve growth and mastery, providing autonomy supported by performance coaching, and create an environment of open communication that
Learn about Leadership Choice’s open enrollment virtual leadership program for helping leaders master 5 essential leadership skills to help create an effective, engaged, and highly motivated employee environment.
About the Author
Founder and CEO
Patrick effectively coaches leaders at all levels and across a number of industries with a pragmatic, consultative approach. Previously, he was vice president with Right Management and held other senior OD and development positions in manufacturing and the professional services Industries. He holds an M.S. in Industrial/Organizational Psychology from Lamar University.
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