I have long been sceptical about the effectiveness of financial incentives. Now research from MIT shows that for anything other than physical tasks, not only are financial incentives ineffective, they can lead to lower performance. View this presentation from Daniel Pink (superbly animated by RSA).
So if financial incentives do not work, how do you get your people engaged and performing to a high level? Three things:
- A sense of purpose: involve people in doing worthwhile work. (Incidentally, hitting financial targets or contributing to profitability do not constitute a sense of purpose.) I have found that, when facilitating team development programmes, nothing is more effective than engaging a team in discussing their shared sense of purpose.
- Self-direction: give people control over their actions and decisions. I have long believed that so many managers of people could benefit from empowering their people much more and that the best form of performance management is self-management.
- Mastery: encourage and support people in achieving excellence. When we carryout employee opinion surveys this comes up time and again. People want to keep learning and improving themselves (and they usually rate this as more important than financial rewards).
The answer seems to be to pay people enough so that financial reward is no longer an issue and then use these more effective motivators to raise performance.
Good leaders know this but not everyone who manages people is a good leader.