Modern businesses must respond to increasingly fast-paced changes in today’s VUCA environment (an acronym that stands for increased volatility, uncertainty, complexity, and ambiguity). The impact of these changes can be felt throughout the organization, from senior leadership teams responsible for successfully planning around those challenges to the front-line employees who adapt their roles and deliver on those plans.
The linchpin connecting these two groups are middle managers. It makes sense, then, that organizations should be crucially concerned with the performance of these managers, especially when it comes to encouraging them to adopt new behaviors and take risks to improve the firm’s bottom-line.
One solution has been to implement incentive compensation or “pay for performance” plans. For adherents, incentives can motivate managers to engage in behaviors that are slightly outside the scope of their everyday role and tackle risks that are more directly aimed at improving performance.
Given concerns about the low performance of incentive compensation schemes, though, when and how such incentives truly motivate behavior has remained an open question. A recent study in the Journal of Organizational Behavior seeks to provide some answers to this question. In fact, the authors of this study were guided by this overarching observation:
“Managers, and people in general, have inertia where they tend to do what they feel comfortable doing. The thought is that if companies provide managers with incentive pay, which is closely related to firm performance, then managers will be willing to take more risks. […] We asked ourselves, ‘Does this always work? Do all managers always take more risks when offered incentive compensation?’”
What they found was that incentives largely worked… but only for certain people and in certain circumstances. For example, they found that managers who were more ambitious or who tended to devote more attention to task performance also tended to be more responsive to incentives, and in turn were more likely to take more risks (as measured by strategic investments or changing course when necessary). The researchers also found that incentives were more effective when overall organizational performance was declining, as opposed to growing.
One practical solution from these results is a recommendation for personalized and dynamic incentive plans that can take these sorts of variables into account. Where this is possible, one can reasonably expect a high degree of success from incentive compensation. Where this recommendation is less practical, however, alternative approaches of motivating behavior may be needed.
If companies are primarily concerned with behavior that aligns to performance, shifting focus away from pre-designated incentives structures towards “surprise” programs that can recognize and otherwise reinforce those behaviors may be a valuable path forward. For example, if managers are recognized and publicly celebrated for a willingness to take risks like those mentioned above, the signal may be that much stronger for others to overcome that initial sense of inertia. Especially if there is a culture that values rather than penalizes those types of behaviors. Recognition can also reach across individual or circumstantial differences, valuing the unique contributions of those who are less ambitious or task-focused, but who nevertheless contribute to performance.
How does your company help motivate manager performance?
As Globoforce’s Vice President of Client Strategy and Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is the co-author of "The Power of Thanks" and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.