Food for Thought: Pay for Performance Obsolete?

Frank Roche over at KnowHR has posted a very interesting video which he claims could “bring you up short if you think pay for performance is the way to go.”  The video is 18 ½ minutes long, so you’ll need a little bit of time to watch* it.  In it, Career Analyst Dan Pink discusses social science findings about rewards and performance and how these can be applied to business.

He starts “making his case” by highlighting studies about how people performed different types of tasks both with and without a reward.  What the researchers found was that rewards narrow our focus, concentrate the mind, and restrict our possibility.  So in tasks with a simple set of rules and a clear destination, those individuals receiving a reward outperformed those who were not told they would receive a reward.  However, when a task required creative thinking, offering a reward extended the time it took to solve the problem.  In one of the studies the researchers concluded “once the task called for even rudimentary cognitive skill, higher rewards led to poorer performance.”

He makes the case that extrinsic rewards should not be applied to tasks that require creativity.  He recommends having intrinsic rewards in place for these types of tasks.  Here are the three that he suggests:

• Autonomy –directing our own lives
• Mastery –getting better at something that matters
• Purpose –doing what we do in the service of something larger than ourselves

He goes on to provide examples of companies and programs that do a good job using autonomy and are seeing results.  He mentions the “20 Percent Time” in use at Google where engineers spend 20% of their time doing whatever they want to do, as well as the ROWE program originally implemented at Best Buy in Minnesota.  His case study of intrinsic rewards in action is the fact that Wikipedia is much more successful than Encarta.

So Dan Pink definitely provided some food for thought.  Much of what he said makes sense and feels right based on my own personal experience.  But he said something else almost as an aside that is likely central to making intrinsic rewards work.  He said “pay people adequately and fairly, get the issue of money off the table, then give them lots of autonomy.” 

But getting the money issue “off the table” isn’t always so easy, especially in today’s economy.  Many companies rely on their incentive programs to be self-funded to hold down costs.  A great number of companies have recently been through layoffs, furloughs, and wage freezes and/or decreases.  A salary that is adequate in the market place may not be “adequate” to an individual.  I imagine that it’s hard to successfully implement intrinsic rewards if people are concerned about their base pay. 

The other thing that must in place before this type of program could take off is the right management culture.  It’s one thing to say we give our employees autonomy, it’s another thing to ensure that all managers trust their employees enough to allow autonomy. 

So I’m not ready to throw all of our cash incentive programs out the window yet, because I think it takes time to get to a place where intrinsic rewards can reach their full potential.  I also think cash incentives still have a place, and maybe the key is to apply those when you want employee’s heads down and their focus to be on a specific, clear goal (that they know how to reach).  I’ll continue to ponder this one and would love to hear our readers' thoughts in the comments.

* Here’s a link to the TED blog which has a written summary of the video if you don’t have time to watch.

Darcy Dees works as the Compensation Manager for Rock Bottom Restaurants, Inc., headquartered in Louisville, CO.  She has been working in Compensation for over 5 years now and recently attained her Certified Compensation Professional (CCP) designation.  She spends what little free time she has hiking and reading.

Comments

[Paul Hebert]

Dan didn't mention that google employees also get stock in addition to the ability to spend 20% of their time working on "fun" stuff.

I've seen this bouncing around twitter now for a few days and while interesting - it's a single data point and very close to the "alfie kohn" school of no rewards. I posted a comment on Frank's blog about this, and I'm with you Darcy - let's not give up on incentives just yet.

What Dan talks about applies in limited areas and within organizations that have a high level of trust and respect (I'm guessing after the last round of corporate layoffs, there are less of them than there used to be.)

The key to this and to all "solutions" is that they are effective when part of an overall strategy that includes team-based and individual rewards and recognition. There is time and a place for everything.

As I mentioned in my intro - take away the stock options and other incentives and google wouldn't be what it is today!

[Ann Bares]

Great post, Darcy!

As with so many provocative perspectives, Dan makes a number of great points, but also a few that beg to be taken with a grain of salt.

Like you, I couldn't help but smile at his suggestion that we (simply) "pay people adequately and fairly, and get the money issue off the table." Like it's that easy. Besides, a big part of what people believe to be fair and adequate pay encompasses having their contributions and efforts - particularly the extraordinary ones - recognized and rewarded. And - as you point out - organizations are finding an increasing need to make some part of employees' compensation package "self-funding", which only happens through some kind of link to performance.

More to say, but I'll leave it at that - and post some additional thoughts at Compensation Force tomorrow, in the hopes of getting some "cross-blog" conversation going!

[Doug Sayed]

Yes, great post, Darcy!

People who enjoy what they do and like who they do it for will nearly always perform better than people who are merely paid well, even if they are specifically incentivized to do work they are not engaged by.

I have also observed (as an employee, a head of HR, and as a consultant) that people who work in toxic environments or who don't like what they do and/or who they do it for, complain a lot more about pay than happy/engaged employees. My theory is that these people (and they may not even realize it) are trying to "compensate" for their crappy job, work environment and/or manager.

Anyways, that's my theory, and I'm sticking to it!

Thanks for the engaging discussion Darcy!

[Becky Regan]

Doug,

I think your theory is right on. And to take it one step further, why the heck don’t they take action to go someplace else, or somehow increase their situation to become happier??? I can only suspect that maybe they actually enjoy that kind of environment based on their lack of initiative. Good is good enough? Or maybe they’ve just settled.

[Darcy Dees]

Paul - You make a good point about Google and stock options. I'd also bet that the engineer who came up with gmail during his 20% time received a "reward" for it.

Dan Pink did start a good conversation though!

[E James (Jim) Brennan]

There's nothing new about the observation that people do what is rewarded and therefore the issue with a reinforcement scheme frequently is that people ONLY do what is rewarded rather than what is best for the whole enterprise. Good to see the reminders, though, because these basics can become stumbling blocks to novices.