Special from World at Work total Rewards Conference
Author Dan Pink stunned some comp pros in the audience at World at Work’s annual convention in San Diego when he questioned effectiveness of money as a motivator.
Pink, author of popular management books including his latest, Drive: The Surprising Truth About What Motivates Us, offered examples of how traditionally-held concepts of compensation and motivation may be flawed.
Gaming the System
In Pink’s first example, management at Redgate Software, a medium-sized UK software company, had a commission-based compensation system that was as “complicated as a medieval spirograph.” Sales people were “coin-operated,” he said. Management became concerned that sales people were “gaming” the system. So management did the typical thing, they made the system even more complex to thwart those who were trying to take advantage. That just spurred the sales people to better gaming, Pink says.
Redgate’s CEO decided (“It was heresy,” Pink says) to eliminate the now complicated commission structure entirely and give all the salespeople a higher base and a share of year-end profits. The senior sales management generally thought it was the worst idea ever, but they decided to give it a try. The result:
- Total sales were up
- Customer Satisfaction was up
- Greater collaboration was observed
- Sales people made more money
The main point, says Pink, is that our basic assumptions about money and motivation are “often wrong.” We assume that if we reward behavior it will be repeated and if we punish behavior it will stop. That’s just not always true, says Pink.
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More Money, More Productivity?
In another study in India and Cambridge UK, says Pink, three similar groups were asked to perform a series of physical and mental tasks. Group 1 was offered a token financial reward, group 2 a greater but modest reward, and group 3 an even greater financial reward. The assumption was that those with the greater financial incentive would perform better. And that turned out to be true for the physical, mechanical, routine type tasks: The higher the reward, the better the performance. But, Pink says, when “even rudimentary cognitive skill” was required, the larger reward led to worse performance. “This was ‘disturbing’ to those with a traditional view of pay and performance,” Pink notes.
The takeaway, he says, is that monetary rewards do seem to work for simple, mechanical, algorithmic tasks, but for more creative, more conceptual tasks, money is just not that effective a motivator.
Punishment and The Daycare Study
Traditional thinking says that punishment will tend to reduce or eliminate undesired behavior. But Pink points to a study of Israeli daycare centers. Most people picked their children up on time but there were a few who picked their children up late, thereby causing problems for the daycare workers who had to stay late and wait.
The center decided to institute a fine for picking up a child more than 10 minutes late. The result? Just the opposite of what the daycare intended: There was an increase in both the number of late pickups and of the number of minutes late.
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What Went Wrong?
Before the fine system was imposed, Pink says, it was a moral question, and most people tried to be on time because it was the right thing to do—they didn’t want to inconvenience the daycare workers.
But as soon as the fine system was instigated, it became a transaction. Some parents just said, I’m happy to pay the fine. And others took advantage, saying, If I am going to be 11 minutes late, I might as well be 25 minutes late.
The message Pink hopes to get across with his examples? Challenge those basic assumptions about pay and performance.
Sometimes Money Backfires
Pink notes that sometimes money will work, but you wish it hadn’t. For example, he says, if you put out a huge bonus to encourage people to make their numbers, they will make them. But you’ll burn customers, and create havoc.
In tomorrow’s Advisor, Daniel Pink on “management is an anachronism” and some great news—your job descriptions are written and up to date.
Pink also points out in Drive that, once money is offered for a task, that de-motivating effect can last even after the money is taken away. So be careful what you decide to incentivize, as you may not be able to change things back again later on.
So . . . what else is new?
I believe this concept was covered in Psych 101 but I’ll pass the news along to Wall St. that they can skip their bonuses this year.
As the world turns we will certainly rediscover the thoughts and writings of the early ‘behavioral scientists’ of the 1920’s, 30’s, 40’s etc. Surely Pink caught up with Frederick Herzberg. Let him not forget the Hawthorn Studies, McGregor, Argyris, or even Maslow. There were many that , while not perfect theory, did add to our knowledge of human-side management.
Frederick Herzberg let us know in the 1960’s that compensation was only a satisfier and not a motivator. Recommended reading is the Two Factor Theory.
Seems he was right.
Not only are Pink’s conclusions derivative, but the studies he cites are poorly chosen to drive his point. While he chooses, whether among sales reps or school parents, to see money as a non-motivator, what is more abundantly apparent (to me) is that all of these groups have managed to finely calculate the ROI in their unique situations. You don’t need an advanced degree to calculate the return you get in exchange for your effort/time/aggravation.