The Dangerous Myth About Employee Motivation

Jun 07, 2023

Have you ever wondered why some employees seem to be highly motivated while others struggle to stay engaged? What if I told you that the secret to employee motivation isn't what you think it is?

Well today, we're going to debunk a dangerous myth about employee motivation and explore the real factors that drive people to perform at their best. We'll take a peep at the fascinating world of human behaviour, exploring the role of pay, the impact of work environment, and the power of collective rewards.

So, if you're ready to challenge your assumptions and discover the truth about employee motivation, keep reading. This isn't just another article about management theory; it's a deep dive into the human psyche that could transform the way you lead your team. But be warned: once you've seen the truth, there's no going back. Are you ready to take the red pill? Let's get started.

Harnessing the Power of an Engaging Work Environment

As a new manager - or any manager for that matter - you're probably wondering how to motivate your team effectively. I'll give you some answers and guidance in a moment. But first - let's take a closer look at the real world of motivation. Specifically, I want to draw your attention to two companies that have successfully harnessed the power of an engaging work environment: Southwest Airlines and SAS Institute.

Southwest Airlines: Soaring High on Team Spirit

Southwest Airlines, a major player in the low-cost airline market, has a pretty unique approach to employee motivation. Rather than relying on individual performance-based incentives - like year-end bonuses or commissions and the like - Southwest focuses on fostering a strong team spirit and a culture of mutual respect. The company believes that a motivated team, working together towards a common goal, can achieve far more than individuals working in isolation.

The results? Southwest Airlines has consistently outperformed its competitors in terms of cost and productivity. Despite the cutthroat competition in the low-cost airline market, Southwest has managed to carve out a niche for itself, thanks to its motivated and efficient workforce.

SAS Institute: Stimulating Minds, Winning Hearts

Similarly, SAS Institute, a leading software company, has achieved tremendous growth without offering traditional monetary incentives like bonuses or stock options. Instead, SAS focuses on creating an intellectually stimulating work environment. The company provides state-of-the-art equipment, offers family-friendly benefits, and encourages a culture of innovation and creativity.

The outcome of this approach is impressive. SAS has experienced a compound annual growth rate of over 25% in its first 21 years. Moreover, the company boasts an incredibly low turnover rate of less than 4%, significantly lower than the industry norm of around 20%.

The Impact of an Engaging Work Environment

These two case studies demonstrate the power of an engaging work environment in motivating employees. Both Southwest Airlines and SAS Institute have shown that focusing on team spirit, mutual respect, and intellectual stimulation can lead to increased productivity and growth. Moreover, these companies have managed to retain their employees, reducing turnover rates significantly.

As a new manager, these examples offer a few valuable insights. They challenge the traditional belief that monetary incentives are the primary drivers of employee motivation. Instead, they highlight the importance of creating an engaging work environment where employees feel valued, respected, and intellectually stimulated.

The Unchanging Myth: The Misconception of Individual Incentive Pay

Despite the compelling evidence presented by companies like Southwest Airlines and SAS Institute, the mythical power of individual incentive pay continues. It's pervades the managerial landscape and holds sway in the top echelons of many organizations.

The Persistence of the Myth

The belief in individual incentive pay is deeply ingrained in our business culture. Many leaders still hold onto the notion that the promise of a bonus or a raise based on individual performance is the key to unlocking employee productivity. This belief persists, despite mounting evidence to the contrary.

Why does this myth endure? Part of the reason lies in its simplicity. It's an easy-to-understand concept that fits neatly into our understanding of human behavior. We like to believe that people will work harder if they know there's a tangible reward waiting for them at the end. However, as we've seen, the reality is far more complex.

The Negative Impacts of the Myth

The myth of individual incentive pay can have detrimental effects on both organizations and employees. For organizations, this belief can lead to a narrow focus on individual performance, often at the expense of teamwork and collaboration. It can also result in short-term thinking, as employees focus on meeting their individual targets to secure their bonuses, rather than considering the long-term health of the organization.

For employees, the emphasis on individual incentive pay can lead to a host of negative outcomes. It can create a competitive, rather than collaborative, work environment. It can also lead to feelings of inequity, as employees compare their bonuses and perceive disparities. Furthermore, it can result in a disconnect between pay and performance, with employees feeling that their compensation is more about maintaining good relationships with their bosses than about the quality of their work.

As new managers, it's essential to challenge this myth and consider alternative approaches to employee motivation. It's not about discarding the idea of rewarding employees for their hard work, but about finding more effective and holistic ways to motivate your team. Remember, a motivated team is not just about the paycheck—it's about creating a work environment where employees feel valued, respected, and engaged.

The Journey to Understanding Employee Motivation: Beyond Economic Models

If you want to understand how employees are motivated, then you to understand the theoretical underpinnings that have shaped our beliefs. One such influential theory is the economic model of human behavior, which has significantly contributed to the myth of individual incentive pay.

The Economic Model of Human Behavior

The economic model of human behavior is a theory taught in business schools worldwide. It's a model that assumes humans behave rationally and are primarily driven by self-interest. According to this model, we choose jobs and decide how much effort to put into those jobs based on the financial return we expect. This model suggests that if pay is not dependent on performance, we won't devote sufficient energy or attention to our jobs.

It almost goes without saying that this model has been influential in shaping the belief in individual incentive pay. It's a simple, straightforward theory that aligns with our understanding of human nature. However, it's a model that paints a rather bleak picture of human motivation and overlooks the complex factors that truly drive us.

The Self-Fulfilling Nature of Theories

What's fascinating about theories like the economic model of human behavior is their self-fulfilling nature. When businesses act on these theories, their actions can shape employees' behaviors. For example, if a business believes that employees will only work hard if rewarded, it will provide rewards contingent on hard work, conditioning employees to work only when rewarded.

This self-fulfilling nature of theories can have profound implications. It can create a work environment where employees feel they are only valued for their output, not for their creativity, teamwork, or other intangible contributions. It can also lead to a short-term focus, as employees strive to meet their individual targets to secure their rewards, rather than thinking about the long-term success of the organization.

So clearly, as new managers, it's to your long term benefit that you are aware of these theoretical underpinnings and their influence on our beliefs and practices. By understanding the limitations of theories like the economic model of human behavior, we can start to challenge the myth of individual incentive pay and explore more holistic and effective approaches to employee motivation.

The Compensation-Consulting Industry: A Perpetuator of the Myth

Now we are really getting into the weeds of employee motivation, and one of those weeds to consider is the ongoing role of the compensation-consulting industry. This industry, often tasked with designing and implementing pay systems, plays a significant role in perpetuating the myth of individual incentive pay.

The Compensation-Consulting Industry and the Myth

Compensation consultants, with their expertise in pay structures and incentive schemes, often advise organizations on how to motivate their workforce. However, their advice too often aligns with the economic model of human behavior, reinforcing the belief in individual incentive pay. This alignment is not surprising, given that their primary source of income comes from advising about pay.

The Path of Least Resistance

Why do managers and consultants prefer adjusting pay over changing organizational culture? The answer lies in the path of least resistance. Adjusting pay is a tangible, straightforward process that can be easily measured and implemented. On the other hand, changing organizational culture is a complex, intangible process that requires significant time and effort.

However, as new managers, it's crucial to recognize that the easy path is not always the most effective one. While adjusting pay might yield some short-term results, changing organizational culture can lead to long-term success by fostering a motivated, engaged, and productive workforce.

The Current State of Affairs: A Closer Look at Employee Compensation

At this point, it's useful to look at some of the current trends in employee compensation. Why? Because they provide valuable insights into the prevailing beliefs and practices in the business world.

The Trend Towards Individual Incentive Pay

A quick glance at current compensation practices reveals a growing preference for individual incentive pay. Bonuses, commission pay, and other forms of performance-based rewards are becoming increasingly popular. Meanwhile, collective reward systems, such as profit sharing, are on the decline. Unfortunately, this trend is not limited to a specific industry or region; it's a global phenomenon.

The Pitfalls of Individual Incentive Pay

Despite its popularity, we've seen that individual incentive pay is not without its problems. It can undermine teamwork, as employees focus on their individual targets rather than the collective goals of the organization. It can also foster a short-term focus, as employees strive to meet their targets to secure their rewards, often at the expense of long-term progress.

Moreover, individual incentive pay can create a disconnect between pay and performance. Employees may start to believe that their compensation is more about office politics and personal relationships than their actual performance. This perception can lead to dissatisfaction, demotivation, and ultimately, a decline in productivity.

So I'll say it again. While individual incentive pay might seem like an easy solution to motivate your team, it's important to consider its potential pitfalls and explore more holistic approaches to employee motivation.

The Case Against Individual Incentive Pay: A Closer Examination

Despite its popularity, individual incentive pay has its fair share of critics and detractors.

The Drawbacks of Individual Incentive Pay

Several experts in the field of management and quality control have voiced their concerns about individual incentive pay. They argue that this approach can lead to a host of negative outcomes, including a decline in teamwork, a short-term focus, and a disconnect between pay and performance.

For instance, William Deming, a renowned management thinker, has strongly argued against individual incentive pay. He believes that this approach can undermine the collective spirit of a team and foster a competitive rather than collaborative work environment.

The Pitfalls of Merit-Based Pay Systems

Merit-based pay systems, a form of individual incentive pay, have also come under scrutiny. Several studies have shown that these systems often fail to improve office performance. In fact, they can lead to unethical behavior, as employees strive to meet their targets to secure their rewards.

For example, Sears had to eliminate its commission pay system when it discovered widespread consumer fraud in its stores. Similarly, Highland Superstores had to abandon its commission pay system due to aggressive sales behavior that alienated customers.

The Way Forward: Embracing Group-Oriented Compensation Systems

Rest assured, there are alternative approaches to individual incentive pay. One such approach is group-oriented compensation systems, which offer a promising solution to the pitfalls of individual incentive pay.

The Promise of Group-Oriented Compensation Systems

Group-oriented compensation systems focus on collective performance rather than individual output. They reward the team as a whole, fostering a sense of unity and collaboration. This approach aligns with the idea that employees are motivated not just by money, but also by the desire to contribute to a shared goal and be part of a successful team.

The Benefits and Evidence

Group-oriented compensation systems offer several benefits. They promote teamwork, encourage a long-term focus, and create a stronger link between pay and performance. Empirical evidence supports the effectiveness of these systems too.

Numerous studies have shown that businesses that pay on a collective basis, through profit sharing or otherwise, often outperform those that don't. These findings underscore the potential of group-oriented compensation systems as a more effective approach to employee motivation.

One potential detractor of group-oriented compensation systems is what we call the "free-rider" problem, where employees contribute less effort because they know they'll share in the rewards of the group regardless of their individual input. In reality though, study after study has shown that this problem is limited and the benefits associated with group-oriented compensation far outweighs any occasional drawback associated with free-riders. In other words - this problem simply doesn't arise frequently enough to care about.

The Bigger Picture: Looking Beyond Pay

It shouldn't come as a surprise not that compensation, while important, is just one piece of the puzzle. The broader work environment plays a significant role in shaping employee motivation and performance.

The Importance of the Work Environment

A positive and engaging work environment can do wonders for employee motivation. It's not just about the paycheck; it's about the culture, the relationships, the opportunities for growth, and the sense of purpose that the job provides. These factors can significantly influence an employee's level of engagement, productivity, and overall job satisfaction.

The Potential Benefits

Focusing on the broader work environment can yield numerous benefits. It can foster a sense of belonging, boost morale, and enhance productivity. It can also help attract and retain top talent, as employees are more likely to stay with an organization that values their well-being and provides a fulfilling work experience.

Lastly, a positive work environment can promote a culture of trust and respect, which can further enhance teamwork and collaboration. This can lead to improved performance, innovation, and long-term success.

Getting Employee Motivation Right: A Balanced Approach

Getting it right requires a balanced and thoughtful approach. This involves moving beyond the traditional focus on pay and exploring more holistic strategies.

Shifting the Focus: From Pay to Collective Rewards

One effective strategy is to de-emphasize pay and focus more on collective rewards. This approach aligns with the idea that employees are motivated not just by money, but also by the desire to contribute to a shared goal and be part of a successful team. By incorporating a significant amount of collective rewards in your employees' compensation packages, you can foster a sense of unity and collaboration, which can boost morale and productivity.

The Symbolic Role of Pay

Pay also plays a symbolic role in an organization. It signals what and who within the business is valued. Therefore, it's crucial to ensure that your pay practices reflect your organization's values and culture. This includes being transparent about your pay structures, which can send a powerful message about the equity of the system and the trust that the business places in its people.

Beyond Pay: Signaling Company Values

It's also important to understand that pay is not the only way to signal company values. There are other methods that can be equally effective, if not more so.

Alternative Methods for Signaling Values

One such method is through clear and consistent communication. Instead of relying on your pay system to subtly signal what's important, why not take a more direct approach? Talk to your employees about what matters to the business and why. This can lead to more nuanced and rapid changes in behavior, as employees won't have to decipher subtle cues from the compensation system.

The Power of Communication

Communication plays a crucial role in shaping employee behavior. When employees understand the company's values and goals, they are more likely to align their actions accordingly. This can lead to improved performance, increased job satisfaction, and a stronger sense of belonging.

Conclusion: Challenging the Myth and Fostering a Positive Work Environment

As we conclude this journey into the world of employee motivation, let's recap the key insights. We've debunked the myth that individual incentive pay is the key to enhancing productivity and efficiency. We've explored the power of an engaging work environment, as exemplified by Southwest Airlines and SAS Institute. We've also discussed the importance of focusing on the broader work environment and the role of communication in signaling company values.

The takeaway for new managers is clear: challenge the myth of individual incentive pay. Focus on creating a positive work environment where employees feel valued, respected, and engaged. Incorporate collective rewards in your compensation packages, be transparent about your pay structures, and use communication to signal company values.

For those interested in delving deeper into this topic, I highly recommend Jeffrey Pfeffer's article, "Six Dangerous Myths About Pay" in the Harvard Business Review. It offers a comprehensive analysis of the misconceptions surrounding pay and provides valuable insights for managers.

Remember, the key to a motivated workforce lies not just in the paycheck. It's about creating a work environment where employees feel valued, respected, and engaged. As new managers, you have significant power in creating such an environment. So, take these insights to heart and strive to motivate your team effectively.

And that's a wrap. Keep learning, keep growing, and we'll speak again soon.




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