What companies get wrong about motivating their people

By Jena McGregor

A behavioral economist thinks bonuses designed to motivate workers are often "a waste of money." Photo / 123RF
A behavioral economist thinks bonuses designed to motivate workers are often "a waste of money." Photo / 123RF

A few years ago, behavioral economist Dan Ariely conducted a study at a semiconductor factory of Intel's in Israel. Workers were given either a $30 bonus, a pizza voucher or a complimentary text message from the boss at the end of the first workday of the week as an incentive to meet targets. (A separate control group received nothing.)

Pizza, interestingly, was the best motivator on the first day, but over the course of a week the compliment had the best overall effect, even better than the cash.

"When I get the money, I'm interested, when I'm not getting the money, I'm not so interested," Ariely said in a recent interview. "Even relatively small bonuses can reframe to people how they think about work."

Ariely describes this study, and others, in his new book, "Payoff: The Hidden Logic that Shapes our Motivation." Short and readable, it is part of a series of TED Books that go beyond the talks but aren't as long as a typical book.

Ariely's latest exploration of why we do what we do looks at intrinsic motivation, the importance of a sense of creation and mastery on the job, and even how our own mortality shapes our motivation.

Many of its observations focus on how people are paid in today's companies -- and where companies go wrong.

The Post spoke with Ariely, a Duke University professor of psychology and behavioral economics who has also written popular books about dishonesty and what leads to irrational decisions, about everything from CEO pay and cubicles in the workplace to finding meaning in our careers.

Q: What was your motivation for doing a book about, well, motivation?

A: Doing research with companies on motivation is unbelievably difficult, time-consuming and rare. The experiment we did with Intel, for me, was so important because as I spend more time with companies, I see that the largest line item is salaries and compensation. It's a problem that people in companies are not spending enough time on and thinking enough about. And then, as a social scientist I think it is such a general problem to think about: The marvels of human motivation.

One of the things I found most interesting in it was the discussion on meaning and work. Talk about "purpose" has become a big buzzwords in Corporate America today. But meaning at work can be as simple as getting to do work where your projects aren't killed off or you're actually creating something and seeing it through.

Companies often don't create a sense of connection and meaning. They destroy it - unintentionally - with rules and regulations.

What do corporations get wrong about this?

Often what it means is that the CEO picks a charity that they give money to. That's often corporate social responsibility. But the reality is that a lot of meaning is about the small struggles in life and managing to overcome them and feeling a sense of progress. It's not so much about having an overarching goal that is 20 to 30 years ahead. I think in the workplace there's lots of things that we do that are small steps of making progress. Companies often don't create this kind of sense of connection and meaning. They destroy it - unintentionally - with rules and regulations.

I wrote a paper earlier this year for the Mayo Clinic Journal. Every year, 400 physicians commit suicide. Of course, this is an extreme example. But take people who are committed to medicine, joined because they want to cure people, and most of their time they have to fill out paperwork. This is not what they signed up for. It's an extreme example, but an example of how we take people who are committed to their work and we destroy their motivation.

In many companies, in the name of bureaucracy and procedure and streamlining things, we're basically eliminating people's ability to use their own judgment. We think about people as cogs. And because of that we eliminate their motivation.

Q: You're critical of the role cubicles play in demotivating people. What could companies do instead?

A: Imagine that you wake up next to your significant other every morning, and you look lovingly into their eyes and say "should we do this for another day or stop here?" Imagine that's the kind of contract you had. How much would you invest in each other? Very little, right?

The same thing is true for employees. There is specific and general human capital. General human capital is when you learn something that could be used everywhere, like Excel. Specific human capital is something you can learn that only works in your company. By getting people to not think about the long term, companies are not getting people to invest in long-term specific human capital.

Q: So what does this have to do with cubicles?

A: They give people a sense that they're interchangeable. The cubicle is a mechanism to signal to people that they are replaceable and temporary. If you look at the walls at Zappos, people have cubicles there, but they get to decorate them in such a way that each cubicle has the same amount of decorations as a small house. Yes, it is a cubicle but it feels like it has your whole personality connected to it.

Q: What do you think companies get wrong about monetary incentives, such as bonuses?

A: There's lots of reasons to give people bonuses - for accounting purposes, or for tax efficiency, if you give people stock options. But in terms of motivation, again, what we find is what is really important is the connection between the person and the company. Think about the idea of goodwill. In most jobs we're relying on people's goodwill and we're relying on more and more overtime. What gets us goodwill is to feel that we're a part of a family, a part of an organization that we're proud of. It's not thinking about yourself as an individual just trying to maximize your revenue.

Q: You've done some research in the past where you actually found that large bonuses can backfire.

A: People expect that as the bonus increases, people will work harder or perform better. But the reality is that as the bonus increases people choke and they actually don't work as well. Now, this finding is true for tasks that require creativity, problem solving and cognitive capacity. It doesn't hold for tasks that require just manual labor. As long as it's just technical, as long as it's Charlie Chaplin kind of stuff, then there's no problem.

With cognitive tasks, we don't have the same control. If I say think harder, by trying to think harder, part of your brain is occupied by "am I thinking harder?" and you actually think less hard. If you go into surgery, you don't want your surgeon to think about bonuses, or about statistics. You want your surgeon to be in a state called 'flow.' You want her to be completely immersed in her work. Big bonuses distract people.

Q: What's your take on the accounts scandal at Wells Fargo?

A: This is just speculation, but what worries me about Wells Fargo is it wasn't a couple of people who were doing it. It was clearly part of the culture.

I'll give you an example from a different company that fixes gas leaks. They had a procedure where they asked people to park illegally, as close as possible to the gas leak, and then they had a procedure for how to submit their parking tickets if workers got one. This company also asked employees to wear protective gear when they were fixing the gas leaks, and they were shocked that people were not always wearing the protective gear. But of course they wouldn't. You just told them speed is more important than the rules with the parking - so why isn't speed more important than the rules in other things as well? You have to think about they're told culturally, not just by the CEO.

Q: When it comes to the rank-and-file employees, should we bother paying bonuses?

A: No. I don't even think we should pay bonuses to CEOs. There's lots of reasons to give bonuses. Some are for accounting purposes -- a company says 'Let's not promise people a fixed amount of money: You'll get at least x, above that we'll do revenue sharing.' I understand that. It depends on how much money we make. But when you have performance-contingent bonuses -- and this goes back to the book -- to motivate people, what you are assuming can hold people back. Imagine I paid you on a performance-contingent approach. What is my underlying assumption? My underlying assumption is that you know what you need to do but you're too lazy to do it.

You're saying they know what to do but they're not doing it. We first need to ask ourselves whether this is the real issue. Maybe you don't feel connected to the goal of the company, right? And then the money, yeah, it might push you a bit further, but it's not solving the problem in a deeper way. Or maybe we would find out that you don't know how to do things better; that if we invested in your education, we would have gotten [better] performance.

Now, let's just mention CEOs. How many CEOs are just lazy? Who'd say, if they didn't have the bonus, that I'm not interested in working? CEOs are deeply involved in their companies. Their egos are tied to it. The second thing they tell you after they say their name, often before they tell you how many kids they have and what hobbies they have is what company they are leading. To think that they're just working for a bonus is just completely crazy.

Q: So how would you suggest boards redesign pay programs for executives if they wanted to base it on an evidence-based, behavioral economics approach? Should they just pay a fixed salary and no performance-contingent amount?

A: You want to pay people well, but it's unclear to me that the bonus is the right way to do it, outside of the accounting thing. I think CEOs should get a good fixed amount -- I don't want the CEO to worry about their own salary. But I don't want them to be motivated by quarterly or yearly earnings. I think they should think about the long term rather than the short term.

The whole concept of pay-for-performance, I think, is very good for some very very specific jobs and completely irrelevant for most of the jobs that we do. What is it relevant for? Sales is a very tough job. It's just very depressing. Paying people for every bit of success is one reasonable solution. But how many CEOs do you know who are really saying, 'you know what? Should I stay home and play with my kids or should I go to work?' and then the bonus shifts that equation for them. It just doesn't happen. All the CEOs I know are extremely, extremely motivated by lots of things. The bonuses of course are good for them, but from a shareholders' perspective, it's a waste of money.

- Washington Post

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