Money Won’t Buy Engagement, But Here’s What Will

Like most companies at the end of the year your organization announced salary changes, issuing merit raises to some, and generally recalculated overall compensation to ensure you remain competitive.

But can you actually use money to motivate and retain your employees? A study by Willis Towers Watson found that only 20% of employers in North America actually believe merit pay is effective in driving high performance.

Traditionally money was seen as the main incentive used to motivate employees. Higher productivity results in higher salaries and bonuses. For companies, it’s been used as the main tool to attract, retain and engage their people. Today we’ve learned that the key to motivation is much more complex than that.

Employee engagement is not about the financial rewards you provide, it’s about the intrinsic motivators that drive people at your company. Say your business hits hard times and you can’t provide pay raises like those in the past. Employees who are there for the financial rewards will be the first to start looking for new jobs.

What’s more rewarding than money?

In his TEDTalk “What makes us feel good about our work”, behavioral economist Dan Ariely discusses an experiment in which he had participants put together Lego figures for a diminishing amount of money. For one group, each time someone finished a figure it would be placed under the table. In the second group, each time someone finished a figure an experimenter would immediately disassemble it.

While being offered the same amount of money, the second group stopped making figures at a much faster rate. Even if nothing was being done with the first group’s Lego figures, the act of disassembling them was an extreme demotivator for the second group. The reason, Ariely explained, is that aside from money, people need to feel a sense of purpose in what they’re doing to actually feel motivated. Furthermore, having the number of figures add up could also give the first group a sense of progress.

Similarly, PWC conducted a survey of employees asking them how much extra time they would work if:

  1. They received a bonus for every 15 minutes more they worked, with a cap of 90 minutes
  2. Customer satisfaction would increase when working 150 more minutes

Interestingly, they found that about 30% would work up to 150 minutes, even if they stopped receiving a bonus after 90 minutes. In both cases we see that people are largely impacted by the purpose behind their work and their ability to see progress or improvement.

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The 3 keys to motivation

In the 1980s, psychology professors Edward Deci and Richard Ryan came up with six main reasons that drive people to work. Building on their theory, authors Lindsay McGregor and Neel Doshi recently adapted these to the modern workplace.

They include positive motives: And negatives motives:
Play Emotional pressure
Purpose Economic pressure
Potential Inertia

When people are working solely based on necessity (to receive a paycheck for instance) they will be thinking more about the reward than the work itself. However, in their study they found that companies which emphasize the three positive factors experienced a boost, not only in productivity, but also in other areas like creativity and customer satisfaction.

How managers can use intrinsic motivators

Douglas McGregor’s XY Theory was one of the first to make the distinction between the use of extrinsic vs intrinsic motivators. In his 1960 book The Human Side of Enterprise he outlined two management styles that require different types of motivators:

  • Theory X managers take a carrot and stick approach to motivation, believing that humans have an inherent tendency to avoid work. Monetary rewards are thus the main tool used to retain and push employees to achieve more.
  • Theory Y managers, on the other hand, believe that a sense of ownership and autonomy in reaching company objectives can drive an inherent form of motivation. Humans receive a natural satisfaction from personal growth and improvement.

Taking McGregor’s Y theory into account, it becomes clear that to motivate employees, managers must provide an environment which can fuse their desire for constant development and achievement with a strong sense of purpose and room for self-direction.

These factors have encouraged managers to break the connection between performance and pay, instead placing emphasis on an environment that encourages Y Theory management objectives. This has created a shift away from annual performance reviews based on X Theory incentives and toward a mission driven environment that fosters creativity, ownership and self-direction.

What that tells us is that creating a strong culture of continuous learning and feedback will win you a motivated and agile workforce.

Steffen Maier is the co-founder of Impraise , the People Enablement Platform. Impraise’s belief is simple: Grow your people, grow your business. They help unleash people’s potential, doing more than just performance reviews, which means accelerating performance, fostering career development, and seizing all the moments that happen in between.

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2 Comments on “Money Won’t Buy Engagement, But Here’s What Will

  1. Annual merit pay may not drive engagement on a day to day level, but I believe it strongly impacts longterm organizational commitment and retention in many jobs. Just try telling someone they aren’t getting any pay increase at all and see how that affects their feelings toward the company. That said, here’s an experiment to test this hypothesis (which I doubt anyone will do!). Ask your employees, particularly the ones you really want to keep, the following.

    “Our financial department has set aside “insert how much you spend on merit pay” dollars for merit pay increases in 2017. This represents x% of our total payroll cost.
    Some HR experts are advising us that merit pay increases do not actually impact employee motivation and commitment. So we’d like to give you an opportunity for us to rethink how we use this money. Please tell us which of the following you’d prefer:

    a. We use the money to increase your annual salary by 0 to 5% based on your current pay level and the contributions you are making to the company (i.e., merit payout).

    b. We use the money to give everyone a flat 3% annual increase regardless of current pay level or performance contributions (i.e., cost of living adjustment).

    c. We don’t give any set annual pay increases, and instead give managers a budget they can use to reward employees with spot bonuses and individual increases as they see fit.

    d. We don’t give anyone annual merit pay increases, and instead invest the money into programs and traiing to create a more meaningful, purposeful, and supportive culture.”

    It would be fascinating to see the responses, particularly if one controlled for current pay and performance levels. Anyone willing to pitch this idea to your CEO?

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