What If We Kill Incentives?

The days when people got steady raises in return for average performance seem to be over, in the wake of recession, globalization and automation.  The modern approach to compensation planning is to ask what we can give people instead of a raise, that costs less than a raise and motivates more? 

We’ve experimented with various budget-friendly ideas, such as:

• certificates of achievement
• community activism as an employee benefit
• substituting lump sum payments for salary increases – see Jim Brennan’s recent post on this
• talking about our great corporate culture on our website
• writing inspiring memos about how we all have to pull together during these tough times
• substituting contingent workers for employees
• doing nothing - a popular choice

Unfortunately these bold experiments - while in some cases saving money - haven’t fired up the workforce as we’d hoped.

Motivation is pretty straightforward.  Most people work for money.   Very lucky people also get some personal fulfillment out of their work, and may therefore be willing to earn less money.  One conclusion we can draw from this is you can save money by providing fulfillment. 

The catch is that most of the research on incentives and human motivation is speculative.  Even empirical experiments tying rewards to behavior are conducted in specialized laboratory situations.  They are useful – and occasionally hilarious – but theoretical until actually put into practice. 

So let’s look at a real life example of how the world looks when you take away monetary incentives.  Like in the former Soviet Union.

I studied political science as an undergraduate.  I read Marx and probably wrote a term paper about the evils of capitalism, or why Communism is doomed to fail.  And I returned from a semester in Moscow with an expanded store of knowledge about incentives, although I didn’t think about it in those terms at the time. 

While in Moscow I was confronted daily with limited choices and poor service.  For example, I’d wander into a restaurant for a cup of coffee.  Half the time the restaurant, although open, would be empty and no one would ever come to take my order.  Food, if available, was limited and unappealing.  You had to get to the grocery store early before they ran out of bread. 

But at the Moscow Steel and Alloy Institute where I studied it was a different matter altogether.  Our teachers were highly educated and respectable.  They showed up punctually for class and did their best to impart knowledge of Russian language and culture to a bunch of sheltered American teens who couldn’t imagine life without Nikes, Walkmans and M&Ms. 

Even the student cafeteria was open most days and served a thick milk porridge for 10 kopeks that I grew quite fond of.

Why such a dramatic difference in performance and motivation between, say, restaurant workers and teachers in a society where everyone is supposedly equal?  Possibly salary, although our teachers were far from rich – the school director wore only 3 outfits during our entire tour of study, albeit scrupulously cleaned and pressed. 

But although the teachers weren’t rich, they were doing better than others in the form of slightly nicer apartments, better access to produce, etc.  Even in a Communistic society, rank hath its priviledges.

More importantly, being a teacher at a large university carried a certain amount of status and respect, which matters quite a bit to most people once their primary needs are met.  Which is why managers who treat people like interchangeable parts rather than valued contributors rarely see a return in loyalty, creativity or engagement.

The good news for the small budget is that motivation is about more than money. It's also about feeling recognized, appreciated and valued for your unique contributions.

The bad news is that empty employer branding won’t get you there, people actually have to feel it.

Picture courtesy of Moscow Hotel Search.

Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

Comments

[E. James (Jim) Brennan]

Nice to see another voice for more material on the psychology of pay. Total Rewards should encompass a lot more than the small component that jingles in your pocket. Cash may keep you alive but it doesn't feed the soul.

[Adam Eisenstein]

It's interesting that you bring up teachers in this example - since when you go through the looking glass to our society in the U.S., we are constantly trying to figure out why we don't have more and better teachers in our system. As one who experimented with teaching for one year each in both Bogota, Colombia and Brooklyn, NY, I can tell you that the level of respect and social status is far higher outside the U.S. for teachers. Until that changes, very little will in our educational system. (It's also worth noting that in Russia, the arts are much more respected - and state-supported, making it a viable career choice.)

[Derek Irvine, Globoforce]

Great, great post, Laura. Very well done. I laughed at your statement: "They are useful – and occasionally hilarious – but theoretical until actually put into practice."

It's that putting into practice step that confounds so many.

Your conclusion is dead-on. People do indeed have to *feel* it. And that's the catch. The only way employees will *feel* recognized, appreciated, and - yes - appropriately rewarded is when they know the company's sincerity behind the actions, as communicated by their managers.

Certainly not easy, but oh so necessary.

[Laura Schroeder]

Jim - I love the phrase, 'Cash may keep you alive but it doesn't feed the soul.'

Adam - Thank you for joining in the discussion, it's true that arts and teaching are highly respected in other countries and that makes a difference to who pursues careers in these fields.

Derek - Glad I could make you laugh, that's a non-monetary benefit. Hats off to all the sincere managers out there!