Why carrots and sticks are bad for your company

If I told you that making salary, perks and benefits central to your employees’ work life would lead to poorer performance and demotivation, you’d probably think I was foolish. “But people are motivated by money and extrinsic rewards”, you’d say, “if I dangle a big and shiny enough carrot, they are bound to perform well in order to obtain it.”

But if you’ve read Dan Pink’s book Drive: The Surprising Truth About What Motivates Us or heard of his groundbreaking theory about what really motivates human beings you’d probably be nodding your head in agreement. As outlined in my previous article Motivation revamped: A summary of Daniel H. Pink’s new theory of what motivates us, new research suggests that the traditional ‘carrot-and-stick approach’ which focuses on rewarding sought after behaviours and punishing the behaviours you wish to discourage, may actually inhibit creativity, diminish performance and result in short-term, narrow thinking.

Pink proposes a revised approach to motivation which focuses on the innate human needs to direct our own lives (autonomy), to learn and create new things (mastery), and to do better by ourselves and our world (purpose).

This article looks at the implications of this theory on remuneration models and incentive schemes traditionally used by organisations. We also make recommendations for new remuneration models that allow individuals to focus on their work rather than the compensation itself.

Implications

As discussed in our previous article, research shows that rewarding behaviour with extrinsic rewards can provide a small motivational boost when tasks are routine, unchallenging and highly controlled. But with modern jobs that are more complex, self-directed and require more creative thinking, rewards can result in:

• Diminished intrinsic motivation;
• Lower performance;
• Less creativity (due to a narrow focus);
• “Crowding out” of good behaviour;
• Unethical behaviour;
• Addictions; and
• Short-term thinking.

It now seems that systems and models organisations have traditionally used to increase motivation and performance are actually more of a hindrance to motivation than a help. It seems organisations are actually getting less of what they want, and more of what they don’t want. But what can we do about it?

New model of remuneration

1.     Adequate baseline rewards

It is a simple fact of life that people need to earn a living. Without money we can’t satisfy our basic human needs.

Pink refers to an employee’s salary, some benefits and a few perks as “baseline rewards”. If these baseline rewards are not adequate, then employees will focus on the inadequacy of their remuneration which will lead to anxiety about their financial circumstances, resulting in very little motivation at all.

The first step to creating a remuneration model which motivates your employees is simple – ensure baseline rewards are adequate. Adequate baseline rewards won’t lead to motivated employees, but it ensures employees are not demotivated by their remuneration.

2.     Internal and external fairness

The most important aspect of any remuneration model is fairness, and it comes in two varieties – internal and external. Employees want to know they are being paid fairly in comparison with their colleagues and with the market (see our previous article Is your remuneration policy internally and externally equitable for some tips on creating equity).

Ensuring remuneration is equitable is also not a motivator in itself, but it will reduce the likelihood that money will be an issue and will reduce any demotivation resulting from perceived inequity.

3.     Pay slightly above average

Points 1 and 2 will ensure employees are not demotivated. Once these are satisfied, organisation need to look at ways of making their remuneration and incentive models motivating. Organisations should consider at paying their employees slightly above market rates, alleviating the need for rewards and making money less of an issue.

Economists have found a higher base pay has more positive effects on performance and employee commitment to their organisation than an attractive bonus scheme.

4.     Delicate use of rewards

Rewards still have a place in boosting performance – but they must be used with caution. Rewards offered as contingencies – “if you do this, then I’ll reward you with that” are generally ineffective and often lead to a focus on the reward itself rather than the task at hand.

Instead, look to reward employees with “now that” rewards – unexpected rewards offered after the task is complete. Such rewards are less likely to be perceived as the reason for doing the task and are thus less likely to be harmful to intrinsic motivation.

5.     Consider nontangible rewards

Rewards don’t have to, and should not, always come in monetary form. Recognition and positive feedback are much less likely to be forgotten and are more likely to increase motivation. Studies have shown that positive feedback can have an enhancing effect on intrinsic motivation.

It may seem insignificant and too easy, but a few positive and constructive words and gestures can go a long way to improving motivation and performance.

For those who have encountered Pink’s theory of motivation would know, remuneration and rewards should not be the primary method for motivating employees, but getting these aspects of work wrong can prove to be highly detrimental.

For more information and ideas on how to motivate your employees without the use of carrots and sticks, see our article Motivation revamped: A summary of Daniel H. Pink’s new theory of what motivates us, or watch the visual depiction of Pink’s theory on You Tube:

http://www.youtube.com/watch?v=u6XAPnuFjJc