The Zen of Compensation


Time

“Time discovers truth.” 

[Seneca]

    We're all motivated by different things. Some of us are focused on goals we want to achieve, so that is what drives us and we get good at managing priorities. But some of us are also motivated by problems we want to solve—deadlines energize this group who is more focused on picking up what could go wrong with things.

    When we have the right motivations in the right seats, we thrive. Doctors who are troubleshooters do better at finding what's wrong with a patient. Insurance people tend to be problem solvers. But either group can be more oriented to achieving goals based on context, for example their specific role. So it's not so cut and dry.

    Our motivation could be mostly internal, or it could come from other people telling us what do to. Some of us prefer to have many options to choose from, others tend to stick to procedures. We may make decisions based on wanting things to stay the same, or maybe we like change and new things better.

    Dan Pink dedicated a whole book to motivation. In Drive, he says most businesses have not caught up with the new understanding of what motivates us. At a high level, he says we're motivated by three things:

1.) Autonomy—or the desire to direct our own lives
2.) Mastery—the urge to get better and better at something that matters
3.) Purpose—the yearning to do what we do in the service larger than ourselves

    As the pace of change continues to accelerate and technology helps us be everywhere from anywhere, we're translating autonomy as the ability to control our time. Entrepreneurs are fierce in their desire to decide when to do what. But the trend is catching on in many corporate environments.

    So many of us are lifelong learners. It's mind boggling the variety and types of courses and programs we can take to work on our skills and practice with peers. People who teach and many business owners are engaged on workshops and online courses all the time. Because a great side benefits of joining such experiences is an instant network of people like-motivated. This trend too has spread beyond the industry conference attendance for people working in companies any size.

    While purpose has been a trend since we can remember. And it is the main force changing how organizations and people do business. Peel back the layers on the best consultants, business leaders, and professionals and you will find a strong purpose or mission.

    In this world where more and more people are motivated by autonomy, mastery, and purpose high motivation teams want to work with highly motivated people. Are companies paying attention? Or are they still using carrot-and-stick extrinsic motivators? The use of personal devices to get around organizations' firewalls could provide a useful cue that intrinsic motivation is a strong force.

Type I people and incentives

    Dan Pink coined a term for people driven by intrinsic motivation—Type I.

    This is a good thing because when we recognize it and support the underlying behaviors, we can improve performance and deepen satisfaction. Both lead to higher engagement. We're not quite there, says Gallup in their annual survey. The latest report still shows 30 percent at the most are engaged at work.

    The problem is companies are still trying to solve the motivation gap with the same methods that created the carrot-and-stick approach. And this doesn't work with Type I people who want more control over their destiny, are eager to build their skills, and have a strong desire to join a tribe and work to make things better.

    We're still driving last century's models rather than looking at the problem in the context of today's business reality. The problem is compounded when we introduce incentives into the system. Every organization that says they want to employ the best and brightest may find that people may come for the money, but that's not why they stay.

The results of an MIT study demonstrated that while there is a correspondence between effort expended and inventive expected for mechanical skills. However, when the task involved even a modicum of cognitive skills, a larger reward led to poorer performance.

    Studies at MIT, the University of Chicago, and Carnegie Mellon all found similar results. Higher pay equals better performance for rote work, but does not work the same way when even rudimentary cognitive skills are involved.

The Zen of Compensation

    Based on experiments that psychologists, sociologists, and economists have replicated over and over again, the highest rewards corresponded to the poorest performance. When the task is simple and straight forward, monetary rewards work, when it is complicated and requires conceptual, creative thinking, they don't.

    For Type I people, says Pink, money is a motivator with a slight twist ― the best use of monetary incentive for work is to pay people enough and take the money issue off the table.

    He says, there are three ways to make this work ― 1./ ensure internal and external fairness; 2./ pay more than average; 3./ if you use performance metrics, make them wide ranging, relevant, and hard to game.

    The core concepts, as he explains in the back of Drive, are:

The most important aspect of any compensation package is fairness.

[…]

Internal fairness means paying people commensurate with their colleagues. External fairness means paying people in line with others doing similar work in similar organizations.

[…]

(One important addendum: Paying people the Type I way doesn't mean paying everyone the same amount. If Fred has a harder job or contributes more to the organization than you, he deserves a richer deal. And, as it turns out, several studies have shown that most people don't have a beef with that. Why? It's fair)

Getting the internal and external equity right isn't in itself a motivator. But it is a way to avoid putting the issue of money back on the table and making it a de-motivator.

When we want better talent, we should consider paying better, too.

In the mid-19080s, George Akerlof, who later won the Nobel Prize in economics, and his wife, Janet Yellen, who's also an economist, discovered that some companies seemed to be overpaying their workers. Instead of paying employees the wages that supply and demand would have predicted, they gave their workers a little more. It wasn't because the companies were selfless and it wasn't because they were stupid. It was because they were savvy. Paying great people a little more than the market demands, Akerlof and Yellen found, could attract better talent, reduce turnover, and boost productivity and morale.

Higher wages could actually reduce a company's costs.

This is another way to help people focus on the work rather than worry about the money.

    The third point Dan Pink makes is about finding the right mix of metrics. When goals are about just one number, we tend to sandbag the rest, but when goals are about every number, we may find it hard to prioritize what matters to moving the needle for the business. So it needs to be a mix of both.

To be sure, finding the right mix of metrics is difficult and will vary considerably across organizations. And some people will inevitably find a way to game even the most carefully calibrated system. But using a variety of measures that reflect the totality of great work can transform often counter-productive “if-then” rewards into less combustible “now that” rewards.

    In most cases, only time (and experience) will tell the best approach for each organization. But it's a good idea to think long term if we want the business to endure and grow. We tend to attract like-minds.

 

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