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If You're Reading This, Money Doesn't Motivate You

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Your wallet may not want to admit this counterintuitive psychological phenomenon, but numerous studies have shown that unless your job revolves around mechanical tasks, monetary rewards don’t result in a better performance.

The real engines that drive a knowledge-based workforce -- those whose work requires even a rudimentary level of cognitive skill -- are autonomy, purpose, and mastery. In fact, the carrot and stick motivation approach has been found to actually lead to poorer performance.

Hey, don’t blame the messenger. This paradox is based on years of hard empirical evidence coming out of, to name a few, MIT, the University of Chicago, and Carnegie Mellon -- the top echelon of economic academia -- and funded by the Federal Reserve Bank.

And if you need proof of this in the real world, author Dan Pink will point you to organizations like Linux that gives away its open source software to Google (GOOG), Panasonic (PC), and Cisco Systems (CSCO) along with a quarter of all Fortune 500 companies. Apache generously powers the majority of web servers with open-source software, and Wikipedia is a free encyclopedia for the entire world.

But one piece of the puzzle that does fit our ethos is the fact that people still have to be paid enough so they’re not thinking about money and can instead focus on producing. So what’s the price tag on taking money off the table? $75,000.

The latest in the crop of research about work satisfaction and productivity has come out of Harvard and contends that “when people work with a positive mind-set, performance on nearly every level -- productivity, creativity, engagement -- improves."

Piggybacking off earlier studies, this one stresses the importance of giving employees the space and autonomy to learn, grow and “fulfill some of their entrepreneurial visions” within the organization. Innovation is also encouraged by, well, encouragement. Like the Ford (F) motivational model advises, progress is a marathon and a good manager will recognize and celebrate each milestone along the way.

A “pay for potential” approach takes generational differences into account when it comes to compensation. Individual talent and potential, rather than tenure, should determine monetary reward.

Also, while flying in the face of earlier research, the Harvard study cites performance-based bonuses, like those earned by salespeople and NFL players, as motivating factors. And this pay structure is expected to pick up steam in white collar professions -- growing from 12% of overall compensation in 2009 to 25% by 2030.

One of the most effective, easiest and, above all, cheapest ways to please an employee is simply to say thanks. For the 31% more productivity, 37% higher sales and three times more creativity seen on average in happy employees, a little kudos is not a bad investment.
POSITION:  No positions in stocks mentioned.