The notion that if you pay people more, you’ll get more – more productivity, more engagement, more ROI – is being turned on its head by an increasingly large body of research confirming what some forward thinking leaders have been aware of for years: cash will only get you so far.
Researchers from the Massachusetts Institute of Technology (MIT) tested the theory in a series of experiments based on the common motivation scheme used within thousands of organisations. The researchers presented subjects with challenges, and to incentivise their performance offered staggered cash rewards according to the targets they reached. The top performers would receive the largest cash bonus, the bottom performers would receive no cash bonus, and those in the middle would receive a small bonus.
The researchers found the model worked extremely well when the tasks were of an extremely narrow focus, for example a factory assembly line – but as soon as tasks called for creativity or even “rudimentary cognitive skill”, a larger reward actually led to poorer performance. Additionally, a collaborative study by economists at London School of Economics looked at 51 studies of pay-for-performance plans at top-level organisations, and found that "financial incentives can result in a negative impact on overall performance".
According to Daniel Pink, author of Drive: The Surprising Truth About What Motivates Us, and several other books about the changing world of work, there is a complete disconnect between what science knows and what business does. The notion that higher rewards will lead to better performances is not only out-dated, but damaging to business. Pink said that money is a motivator only insofar as you must pay people enough to take the issue of money off the table. “Pay people enough so they are not thinking about money and they're thinking about the work. Now once you do that, it turns out there are three factors that the science shows lead to better performance, not to mention, personal satisfaction.”
Pink said that most people are most motivated when these three factors are at play, and they form the building blocks of an entirely new operating system for businesses:
Autonomy: the urge to direct our own lives
Mastery: our urge to get better and better at something that matters
Purpose: the yearning to do what we do in the service of something larger than ourselves
Pink said the three layers of motivation are demonstrated in the Results Only Work Environment (ROWE) HR strategy devised by consultants Jody Thompson and Cali Ressler, who run the US-based consulting group CultureRx. Thompson and Ressler originally proposed the strategy to consumer electronics retailer Best Buy, and have since implemented the strategy at more than a dozen other large US organisations. “In a ROWE people don't have schedules. They show up when they want. They don't have to be in the office at a certain time, or any time. They just have to get their work done,” Pink said. The way work is completed, when it’s done, or where is done, is completely self-directed and according to Pink, almost across the board productivity, engagement and satisfaction goes up, and turnover goes down.
To critics, Pink said the model is not ‘Utopian’, and cites the Microsoft Encarta vs Wikipedia battle as just one example of the model at play. “[Microsoft] deployed all the ‘right’ incentives. They paid professionals to write and edit thousands of articles. Well-compensated managers oversaw the whole thing to make sure it came in on budget and on time. A few years later another encyclopaedia got started. Different model, right? Do it for fun. No one gets paid a cent, or a Euro or a Yen. Do it because you like to do it.”
According to Pink, businesses must adapt the way they motivate their employees under a new model, or they will be destined to go the same way as Encarta. “This is the titanic battle between these two approaches – intrinsic motivators versus extrinsic motivators. Autonomy, mastery and purpose, versus carrot and sticks. And who wins? Intrinsic motivation, autonomy, mastery and purpose, in a knockout.”