Many companies still try to motivate their employees by offering performance-related bonuses. But in doing so they are ignoring the findings of various sociological and psychological studies: Financial incentives are no guarantee of improved performance. As a matter of fact, they can have the opposite effect and stifle both the creative design process and innovation.
Irrespectively, not many companies are confident enough to question the traditional bonus system. While they may have difficulties finding the right system, there is also the worry that they might have to increase base salaries, which is a step that cannot easily be undone and will increase the company’s cost base.
Asking the right questions to find the adequate solution
Once decision-makers have decided to abandon traditional performance-related bonuses they are faced with a challenge: Finding the adequate remuneration model is tricky and time-consuming. There is no one-size-fits-all solution. It varies from company to company and industry to industry. However there is a number of questions that can help HR strategists and CEOs to assess the right model for their company:
- What actually motivates our staff?
Bear in mind the basic principles when it comes to motivation. This applies for all people processes, not just bonuses. Take a look at the presentation by Dan Pink, who talks about how to unravel the puzzle of motivation in one of his most famous Ted Talks. According to Pink, the true drivers of motivation are purpose, autonomy and mastery: Purpose – The yearning to do what we do in the service of something larger than ourselves. Autonomy – The urge to direct our own lives. Mastery – The desire to get better and better at something that matters. This bears no relation to what can be achieved with a performance-related bonus.
2. Do we have an innovation culture?
“Culture eats strategy for breakfast!” is a quote that can often be found in articles about strategy and change management. This statement is often attributed to Peter Drucker, who believes that even the best of strategies amount to nothing if a company does not have the right culture. In other words, having the right innovation tools at our disposal does not mean that we automatically become innovative. In this respect, an innovation culture plays a far more important role.
Many companies in the high-tech sector are leading the way in this regard: They foster their employees’ individual strengths and sense of initiative, motivating them through recognition. Many tech companies give their software developers a certain percentage of their working time to do something that interests them personally. It is during this time that many globally successful, innovative products are said to have originated. Other companies focus on collaboration and the pursuit of common goals: Here employees are not assessed individually, but as a team. They determine their own goals as well as how they would like to achieve them. The goals are also assessed in the team – on a collective basis. Everybody is then apportioned an equal share of the company’s profit.
3. Is our remuneration system fair, consistent and transparent?
Various sociological and psychological studies have shown that performance-related bonuses do not actually motivate staff. We cannot, however, neglect the fact that if somebody believes they are being paid the wrong amount, this can have a real demotivating effect. It is interesting to note people are always demotivated by their pay if they believe that they are being paid less than their peers. The comparative effect here is key. That is why fairness and consistency are the linchpins of a successful remuneration model. When combined with transparency, they increase acceptance among staff. Transparency does not necessarily mean disclosing what everybody gets paid, although some companies have started doing this. Transparency can also be achieved by communicating the model and the rules for it – and then obviously sticking to these rules.
4. Why not share your success?
One good option for a variable remuneration system could be to share a company’s profits with employees. This is especially the case in network-driven industries. We are only successful when we work together – so we will also share our profits. One option could be to introduce the “Success Share Units” system. Here, each employee receives a number of units. Then each year, the value of a Success Share Unit is calculated based on the company’s profit and these are then paid out to staff. The more transparently the value of a unit is communicated on an ongoing basis – even during the year – the higher the acceptance among staff.
5. Do “spot” rewards help?
Depending on the goals we are pursuing, “spot” rewards can play a key role. Here there are various options, which can be individually tailored to companies’ needs. For example, management could have a budget, which they could use at any time, i.e. straightaway, as a token of their appreciation for certain achievements. This budget could also be handed over directly to employees. Any employee can nominate and reward any other member of staff for a certain achievement. This could be linked to values, culture or particular goals. The reward itself can also vary, from a one-time cash payment to individual choices, much like the frequent flyer programs offered by many airlines.
In sectors where numbers and KPIs are king, this may sound like some sort of unrealistic dream. However, there have been many examples of companies that have successfully used this principle. They have understood that innovation and creativity cannot simply be prescribed from above, or financially incentivized, but must instead be achieved through intrinsic sources of motivation.
In the end, no matter which model you decide on: nothing will replace the impact of real personal appreciation and a sincere “Thank you”!