Everything you know about motivation is wrong

Employees are motivated by money--the more money, the more they're motivated. Bonuses are a great way to get employees to work harder and do a better job. If you can't motivate people with carrots (money), you've got to do it with sticks (the threat of dismissal), because they're inherently lazy. Do you believe any of this? All of this? If you do, you're not alone. This is the way that workers in the U.S. have been motivated for more than 100 years. Carrots and sticks. They work when employees are doing low-value, repetitive work. However, if your business requires creative, high-value work, the carrot and stick model not only doesn't work, it's counterproductive.

Three recent books, Dan Ariely's "The Upside of Irrationality," Daniel K. Pink's "Drive", and Clay Shirky's "Cognitive Surplus", cover some of the most recent research in behavioral economics. In particular, Ariely and his associates have done a lot of research, verified independently, that turns much of what we thought we knew about motivation on its head.

Consider the relationship between money and performance. Paying someone more will result in better performance, right? Ariely and his associates conducted studies in multiple countries where they asked volunteers to complete a series of tasks, ranging from very simple to very complex. Participants were ramdomly assigned to one of three groups. The first group was offered a nominal payment--perhaps the equivalent of a day's pay--for fully completing all the tasks. The second group was offered the equivalent of a week's pay, and the third group was offered the equivalent of a month's pay. For each task, the volunteer had to successfully complete a series of tests or actions. If they completed a at least a minimum number, they would receive 50% of the money for that task. If they completed a higher number, they would receive 100% of the money for that task. If they didn't complete the minimum number, they would receive nothing for that task.

The first two groups--the day's pay and week's pay groups--had almost exactly the same performance. However, the month's pay group was so fixated on the money that it did far worse than the other two groups. The pressure to perform interfered with the month's pay group's ability to concentrate on the tasks. The bottom line is that putting more money at stake can actually decrease, rather than increase, performance.

Next, let's look at the value of money vs. personal accomplishment. In one study, the researchers asked participants to assemble Lego Bionicle toys. For each toy built, each participant would be paid on a sliding scale: $2.00 for the first one, $1.89 for the second one, and $0.11 less for each following completed toy. They could build as many toys as they wanted, and stop whenever they wanted to. Participants were randomly assigned to two groups: Those in the first group were told that at the end of the experiment, their toys would be disassembled so that they could be used by another participant. In the second group, after the participant completed building the first toy and started building the second, the experiment's supervisor disassembled the first one in front of the participant, telling the participant that they were doing it in for them to have another toy to assemble.

If money was the motivating factor, it shouldn't have mattered whether or not the toys were disassembled by the supervisor, but those in the first group that didn't see the toys disassembled before their eyes built substantially more toys and made substantially more money than those in the second group. The participants in the first group also enjoyed the project much more and were more satisfied by their work. 

How about bonuses? Aren't they a great way to motivate employees to work harder? Experiments show that the first time a bonus is offered, it does have some benefit, subject to the situation discussed above--if the bonus is too big, employees fixate on the money and can't concentrate on the work. However, workers subsequently associate the bonus with the effort and expect to get it again. If they don't get it, they're demotivated and their work suffers. This is why companies find themselves locked into offering bigger and bigger bonuses in order to get the same amount of performance improvement.

Multiple studies have shown that money is a strong motivator when people are struggling to make ends meet--when they're at the lower rungs of Maslow's Hierarchy of Needs. However, in the U.S., once a person's annual income passes $60,000 (on average), the motivating power of money diminishes rapidly. It's at this point that, in Daniel Pink's terms, primary motivation shifts from extrinsic (carrots and sticks) to intrinsic (finding challenges, satisfaction and worth.)

Pink defines intrinsic motivation as having three components:

• Mastery: Performing your task well and being challenged by it. Both Pink and Ariely refer to the groundbreaking work of Mihaly Csikszentmilalyi, who identified "Flow", a state of intense concentration where the participant loses track of time. Flow is a state of optimal performance, and it occurs when you're working on a challenge that's difficult enough to tax you but not so difficult that it's impossible to do. If a task is too simple, it leads to dissatisfaction through boredom; if it's too difficult, frustration leads to dissatisfaction and disengagement.
  
  This is a reason why athletes are kept relatively closely grouped by skill level while they're learning a sport. If an athlete's skills are too advanced for his or her group and they don't get a chance to play with more advanced players, they get bored and lose motivation. On the other hand, if an athlete is grouped together with others who are much better skilled, he or she may get frustrated, lose motivation and quit.
  
  You don't have to be an expert at a subject in order to experience mastery, but you have to be good enough at it to accomplish key tasks, yet still find challenges that push you to become better.
  
• Autonomy: Autonomy is the amount of control that you have over how you do your job. Specifically:
  
• Where you do it: Are you required to do your job in an office or factory, or can you work from home or another location of your choosing?
  
• When you do it: Can you set the hours that you work, or are you required to begin and end your workday at specified times? Can you eat when you want and take time to handle personal matters, or do you have to clock in and out at specific times and get permission from your manager for any personal time?
  
• Who you do it with: Do you have control over who you work with, or are you assigned to work with individuals and teams and have no say in the matter?
  
• What process you use to do it: Do you have a lot of latitude in deciding how to achieve your objectives, or are you required to follow a set of tightly-defined procedures and use a specified set of tools?
  
• Purpose: Can you find a purpose for your work (other than earning a paycheck, of course)? Is your work meaningful to you, or is the reason you're doing it because you were told to do it by your supervisor? Do you believe that you're adding value or doing "make work"? Satisfaction and motivation are strongly driven by a sense of purpose. Workers who find an intrinsic purpose to their efforts have been shown to be more motivated and more efficient. On the other hand, people for whom a paycheck is their only purpose have been shown to have much lower job satisfaction, are more likely to change jobs and typically require more money over time in order to maintain the same level of performance.
  
  In fact, one could argue that the entire system of promotions, pay increases and bonuses that has evolved since the late 19th Century is based on a lack on intrinsic purpose. When pay becomes the purpose, it's inherently demotivating over time, so more pay is needed to "increase" motivation, which in turn creates a dependency on future pay increases.

With all this as background, what are a few of the things that progressive employers can do to improve motivation and job satisfaction?

• Pay above-average salaries at the start in order to attract better employees, instead of relying on bonuses to motivate better performance.
• Keep employees challenged with new projects that help them hone their skills. Projects that are too simple lead to boredom, and those that are too difficult lead to frustration.
• Give employees as much autonomy as possible. Things like flextime and personal days only give the appearance of autonomy. Employees need to have control over how, when, where and with whom they do their jobs.
• Enable employees to find an intrinsic purpose for what they do. If they don't understand why they've been asked to do something, or they know that what they've been asked to do won't make a meaningful contribution to the company's success, their sole motivation will become money, and money loses its effectiveness over time.

Moving from extrinsic to intrinsic motivation goes against most of the management practice and economic theory of the last century or more, as well as against the culture of most companies. It may well be impossible for most existing organizations to make the change. If that's the case, it's up to new, agile organizations to adopt the lessons of behavioral economics for better productivity, greater employee satisfaction and lower costs.

Job offers: If it sounds too good to be true...

I moved to Silicon Valley many years ago, when I was young and stupid (as opposed to being old and even more stupid today.) After I'd worked in the Valley for a few years as a product manager, I was recruited by a good-sized technology company, and was offered a supervisory position and a big raise. The company I was working for had already told me that I had to relocate to a suburb of Boston in order to keep working there, and I wanted to stay in the Valley, so I resigned and took the job offer.

Almost as soon as I started my new job, I realized that I'd made a mistake. Within two weeks, I was told that the company didn't have the budget to allow me to hire anyone, so there would be no one to manage. The VP of Sales was supplying cocaine to his salespeople in order to keep them finding and closing deals; I spent time on the phone with screaming, coked-up salespeople almost every day, The CEO was famous for his insane temper tantrums if a visitor accidentally parked in his parking space. Shortly after I came on board, the company hired a VP of Marketing from an old-line technology company. This VP was more interested in the size and location of his office than he was in getting things done, and I learned after I left the company that he had actually had very little to do with the project that helped him land the job at my company, a project that he bragged about constantly.

I soon found out that the reason that I was offered a big promotion and raise is that the company had a reputation as an almost impossible place to work. I would have found that out if I had asked the right questions (like "What's your employee turnover rate?). I stayed in that job for six months because the recruiter told me that he'd only get his fee if I stayed that long.

The lesson here is pretty simple: If a new job sounds too good to be true, it probably is.

Rewards lead to results

Have you ever wondered why so many companies are so focused on this month's or quarter's sales, while others have better long-term performance and are successful year after year? Why do some companies put so much effort into writing long-term plans that no one reads? The answer is employees do what they're rewarded for and avoid things that will lead to punishment. It sounds Pavlovian, but it explains a lot of behavior that otherwise doesn't make a lot of sense.

Salespeople are usually rewarded based on meeting quarterly and annual quotas. If they miss their quotas, their income will be lower than expected, they won't earn bonuses and they might get fired. Therefore, missing their quotas is to be avoided. On the other hand, they don't want to exceed their quotas by too much, because if they do, their quotas will be increased in the next period and they might have trouble achieving them. Also, if they know that they're going to exceed their quotas and they can have their customers defer purchases to the next quarter, it'll make next quarter's numbers much easier to make. So, even though they might be able to sell more in the current quarter, they don't.

Executives in public companies know that their stock value is based largely on sales, earnings  and profitability growth. It's easier and faster to increase profits by cutting costs than by increasing sales; that's why companies freeze hiring, delay capital expenses and lay off workers at the first sign of a sales downturn. These actions protect earnings and help to maintain stock prices, which means that the executives can preserve their bonuses. Obviously, many cost cuts are necessary and appropriate, but companies often overdo it, making themselves uncompetitive and crippling their ability to respond when the economy recovers. Short-term pain avoidance almost always trumps long-term thinking.

Rewards don't necessarily have to be economic; they can be emotional as well. Many studies show that giving people personal recognition for doing a good job can be even more effective in eliciting a desired behavior than bonuses, especially if the positive recognition is given often and sincerely.

Companies often reward employees for doing the wrong things. For example, some companies reward employees for writing long, detailed plans that are then put on a bookshelf and ignored. The details of the financial forecasts, the number of pages and the length of the accompanying executive presentations are the measurements for whether the plan is good or not, rather than the fact that events may make the plan irrelevant in a few months. Employees get the message that quantity is more highly valued than quality, and that the plan is more important than actual performance.

In short, people do what they're rewarded for. If you're not getting the results you want, first figure out what behavior you're rewarding.