The Secret to Workplace Motivation

Published April 7, 2014

Abstract

Dan Pink warns us that dependence upon incentive-based motivation is misguided. Compare his thoughts on proper workplace motivation with traditional rewards-based incentives.

As Dan Pink points out in the TED video, traditional incentive-based motivation does not often work well, especially for complex tasks that require thinking. And, the more you rely on the carrot-and-stick approach to motivation, the less it works. Harvard University’s Harry Levinson famously pointed out that if you treat your employees like jackasses, that’s what you will get: stubborn, willful creatures who don’t want to think and will only behave the way you want them to if you give them a carrot and hit them with a stick. They will sometimes do the opposite of what you hope just for spite; as soon as you stop with the extrinsic incentives they will wander back to whatever it is they would prefer to do (Levinson, 1973). Therefore we must find more effective combinations to keep people motivated.

Getting More Out of Classic Incentive-Based Motivation

Designing for Level of Analysis

This does not mean that incentive based motivation does not have a role in the overall regime. It does, however, mean it should be just one of your motivating factors. The incentives that do get used should be designed and positioned to be as effective as possible. Incentives need to be aligned with their level of analysis (individual level, group level, firm level, corporate level), and then they must be effectively implemented. So this paper starts with getting that part right, then we’ll discuss other main categories leaders can use to keep themselves, and the rest of the people at work, motivated.

The first question to ask is: whom are you trying to motivate? An individual, a group/team, a firm or multiple businesses under one corporate umbrella? Individual workers (Brewmaster, waiter, CFO, delivery driver, etc.) are motivated differently when their compensation is tied to only their individual performance. Groups/teams need to work beyond personal achievement and foster the achievement of the entire group. How should incentives be designed differently to accomplish this? What if your brewery is broken up into a series of different businesses (See Multi-Business Model Approach)? You may have a beer manufacturing business, a pub/tasting room, a self-distribution business and a business that owns the land under your brewery. How do you get workers in all of these businesses to play well together? Motivating factors differ by level of analysis.

Traditional – Incentive Based Compensation

Individual: The Transaction Level of Analysis

At the transaction level of analysis there is a contractual agreement between a business entity and a worker (employment contract) or between two entities (buyer/supplier relationship). The keywords here are opportunism and task excellence; your challenge is to reduce the negative effects of opportunism and increase desire to perform at one’s best. Your outcome measure here is reduced opportunism, measured by the total value of transaction costs.

Sub-Group: The Group Level of Analysis

Groups behave differently than individuals. There are all sorts of strange group forces at play: cohesion, soldiering, culture, social loafing, psychological identification, loyalties and so forth. At the group level we want to be focused on the success of the functional group or team. The challenge at this level is optimizing the balance of individualism and collectivism in the organizational culture. Individual agents usually have some desires for themselves that are not in sync with the objectives and rules of the group or team. How do you still keep individuals motivated while, at the same time, trying to drive group results?

Firm: The Business Level of Analysis

This is understood through Jay Barney’s resource-based view. Your outcome measure here is to gain and sustain competitive advantage for this business unit.

Corporation: Corporate Level of Analysis

The goal here is to improve coordination and maintain flexibility, at the corporate level, among all your different business units.

Motivators – Reliance On Carrots and Sticks Doesn’t Work

In the Ted.com talk above, Dan Pink suggests the carrot-and-stick method of incentive-based compensation does not work. At CAS, we believe in a balanced approach. Just like you need the right balance of ingredients in great beer, you need to balance your incentive structures to retain key employees and attract new ones. However, just having the right combination of resources is not enough, to be a craftsman – your business needs you to align your incentive structures with your core values and to transparently communicate them to BOTH internal and external stakeholders.

At each level of analysis the most productive motivating components will likely differ. For the sake of a clean model, let’s cross the three levels of corporate performance above with Clawson’s three leadership levels (Clawson, 2002). The three levels are:

• L1: Behavioral,
• L2: Rational
• L3: Emotional

These come from the classic rational emotive behavior (REB) model. The motivational challenges are to use the proper mechanisms in nine different areas:

At each organizational level (I, G, F, C) we decide upon a best way to lead (L1, L2 and L3). Some examples are given below in the table just to help demonstrate the differences. You may craft these motivators yourself to grow and to fit your company culture.

Let’s just take a closer look at the carrots that can be provided at each level and see how they differ:

Individual Compensation Vehicles:

Salary, cash bonus for individual performance, stock grants for individual performance

If you have a small team, without much division of labor, then individual bonuses can be very effective. You need to set SMART goals and have clear criteria for hitting them

• Production Goals – Barrels produced per quarter
• Purchasing Goals – For every 10% reduction in raw materials, the purchasing department gets 2% cash bonus

Group Compensation Vehicles:

Cash Bonus for Group Performance, Scanlon Plans to Reward Cost Savings

Your production team and your sales team may measure success in very different ways (barrels produced vs. new sales accounts added, respectively). Success in each area has very different cost structures (purchasing, labor, yield in manufacturing beer vs. travel, cold calls per week, handles put up per city in sales). How do you reward both groups when measuring success is so different? Use your creativity; what is something they can both achieve together?

• Placements in grocery stores are competitive, the sales team fights for every placement, consumers always want something new and different; if a seasonal runs out, that space in the 22 oz. beer aisle goes to a competitor. Encourage the production team to devise a beer program that introduces something new, something delicious and is exciting for the sales team to sell – the production team supplies the ammunition, the sales team shoots the weapon.
• Percentage bonus for both teams each month/quarter, for each grocery SKU (net) added.
• Costs in production have to be carefully controlled. Productivity goes up when yields go up. If your operating costs are at 34% you can incentivize the team to get the costs to 30% and share the cost savings with the team. A Scanlon Plan is devised to do just this. Employees get a portion of the savings as a cash bonus on their pay checks.

Firm Level Compensation Vehicles – Profit Sharing, Annual Bonuses:

When objectives for each year are reached or exceeded and the business becomes more profitable or more productive in achieving its goal, employees should gain extra compensation. Rewards of this kind must have a high “valence.” That is a fancy way motivation theorists say that the reward has to be big enough to matter to the person getting it.

Corporate Compensation Vehicles – Stock Options:

Companies can get into trouble if they only tie performance incentives to the individual or group. Imagine you have a great team of managers in your company (production manager, sales manager, human resources manager, CFO). All of their performance is tied to the individual incentives of their departments. You state a goal to grow by 40% for the upcoming year. It takes a coordinated effort to accomplish this; perhaps you have a rising-star employee in production that could also be the ‘face of the franchise’ in public because she is so eloquent and engaging as a speaker. Why should your production manager give up her best worker to the marketing/sales team, when her bonus is tied to production goals? She may know it is best for the company to have this person driving sales, but you, as the CEO, have not supported this kind of “team” decision-making because your compensation structure is not aligned with your new goal of 40% growth. Instead, tie each division manager’s compensation to the overall performance of the company , as measured by your stated 40% growth goal. Give your managers clear boundary controls on expenses, and then give them the freedom and creativity to design how they will reach the goals as a team.

References

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