Understanding the Psychology of Incentives and Rewards
March 20th 2018, by Brad Monaghan
Achieving optimal motivation is less about dangling carrots and more about understanding our deeper human needs. For people in sales and marketing, as well as business owners, the same lessons apply.
Australian billionaire Richard Pratt famously quipped: “Encourage your people to be committed to a project rather than just involved in it. You know the difference between involvement and commitment, don’t you? In a meal of bacon and eggs, the chicken is involved, the pig is committed.”
Humour aside, Pratt makes an important point. His farmyard anecdote begs the question, how many of us are merely involved in our careers rather than truly committed? How many of us just turn up every morning to go through the motions, and how many of us are truly motivated to overcome, rather than simply survive, the many challenges of running a sales team in a tough economy?
Those are confronting questions, but vital ones that sales managers need to be asking themselves. Chances are that your answers to them will be directly related to your level of motivation. And motivation—yours and your team’s—counts. The impact of sales coaching is massive here – inspiring teams and encouraging them to be inquisitive is a big part of keeping them engaged.
A recent Seek Satisfaction and Motivation survey found that 77 per cent of Australian workers are less than happy in their jobs after 12 months with the same employer, and six out of 10 people would not recommend their organisation as a great place to work.
“More and more organisations want to have some kind of transcendent purpose; partly because it makes coming to work better and partly because that’s the way to attract better talent.”
That’s a poor assessment of employee satisfaction and brand advocacy levels in Australia, and a strong signal that a rethink of our current motivational techniques is well overdue. Australian sales teams have traditionally been motivated through the ‘carrot and the stick’ approach in which staff are offered monetary rewards for high performance. However, in the same Seek survey, an overwhelming 46 per cent of respondents cited increased encouragement, support and people focus as key motivating factors. Only 10 per cent of respondents put salary and incentives at the top of their list.
Those numbers suggest that staff motivation is not a problem that you can throw money at, and exponentially raising monetary incentives may not have the desired impact. In fact, what truly motivates you, and your sales team, may come as somewhat of a surprise.
Cash Is No Longer King
There’s an old joke that goes something like this. An old man, tired of being taunted by the neighbourhood kids, comes up with a plan. He offers each child a dollar to return and continue their tirade the next day, which they do with gusto. He then tells them that he can only pay them 50 cents each for the following day’s taunts. The kids still turn up but there isn’t quite the same level of energy behind their insults. Afterwards, the old man informs them that the rate for the third day will only be five cents each. “Forget it,” they say—and never taunt the old man again.
The moral of the story, contrary to the belief of many sales managers, is that cash isn’t necessarily king when it comes to the fine art of motivation. While a monetary incentive was initially well received by the kids, they ultimately lost motivation for a task they originally did for free.
“Management is great if you want compliance, but if you want engagement, self-direction is better.”
According to research conducted by Dr Scott Jeffrey, assistant professor of management at Monmouth University in New Jersey, cash may not be a strong motivating factor—even when cash rewards top your staff’s incentives wish list.
“The really interesting finding is that people do state a strong preference for cash,” he says. “Yet they perform better in pursuit of non-cash incentives. So we’re faced with one of two things; either, they don’t know what motivates them; or, they know what motivates them but they’re reluctant to tell you because they’ve been raised to think that cash is king.”
While it’s true that cash does have its place as a motivator given the right circumstances, employees are human beings and human beings inevitably need more than a dangling carrot to maintain genuine motivation.
“Motivation is both extrinsic and intrinsic,” explains David Abusah, talent director at PricewaterhouseCoopers. “Extrinsic motivation drives people through reward or recognition, whereas intrinsic motivation is about making the work meaningful for the employee. Sometimes organisations forget about the intrinsic aspect of motivation and just dangle a big carrot in front of their employees.”
In fact, leading psychologists have found that, used in isolation, extrinsic motivation can actually be counterproductive. Studies have shown that while extrinsic motivators such as cash incentives can boost performance of menial tasks, it can actually hamper creative thinking and problem-solving ability.
Used incorrectly, Abusah says extrinsic rewards can create some disengagement. “You might actually start to reduce the enrichment of a job and become so prescriptive around the role that you actually start to see a reduction in job satisfaction.”
The Three Pillars of Intrinsic Motivation
Instead, optimal performance is achieved when employees find intrinsic value in their work. In his new book, Drive: The Surprising Truth About What Motivates Us, best-selling author Daniel H. Pink sets out the case for intrinsic motivation.
“Employee engagement is the single most important factor—high quality employees… saying good things about the business and workforce. If you haven’t got those things then you’re building on sand.”
“The best use of money as a motivator is to pay people enough to take the issue of money off the table,” he said in a recent keynote address. “Pay people enough so that they’re not thinking about the money, they’re thinking about the work. Once you do that, it turns out that there are three factors that science shows lead to better performance, not to mention personal satisfaction.”
According to Pink, those three factors are autonomy, mastery and purpose. Autonomy is our desire to be self-directed which can be crushed by extrinsic rewards that wield control over the creative process. Companies such as Google have embraced the power of autonomy, allowing employees to work on any project of their choosing for 20 per cent of their time.
Likewise, Australian software company Atlassian, allows its developers to work on anything they want, any way they want, with anyone they want on one day per quarter. Both companies claim the policy has resulted in a level of innovation well beyond that which extrinsic rewards could foster.
“Management is great if you want compliance,” says Pink. “But if you want engagement, self-direction is better.”
Mastery is as important as autonomy to achieving intrinsic motivation. Mastery is our in-built desire to get better at a set task. This is why, says Pink, we devote time to hobbies that come with no monetary reward.
“Look at the open source example in Linux and Wikipedia,” he says. “People are giving their time completely free of charge to do challenging work. That’s strange economic behaviour. Why are they doing it? It’s overwhelmingly clear: challenge and mastery, along with making a contribution. That’s it.”
The final piece in the intrinsic motivation puzzle is what Pink refers to as purpose, or the need to feel part of something greater than ourselves.
“More and more organisations want to have some kind of transcendent purpose; partly because it makes coming to work better and partly because that’s the way to attract better talent,” he says. “What we’re seeing now in some ways is that when the profit motive becomes unmoored from the purpose motive, bad things happen. We are purpose maximisers, not only profit maximisers.”
The Missing Link
While cash may no longer be king in the battle for your team’s hearts and minds, extrinsic rewards certainly still have a role to play. When integrated with strong intrinsic motivation and personalised to fit the needs of individuals, monetary rewards can be a powerful added extra.
“Taking a holistic view of rewards is something that we would advocate,” says Abusah. “You need to be very clear about the desired outcomes before you start, and also recognise that we are talking about human beings that are driven by different things, both intrinsically and extrinsically. Actually think about whether one size fits all.”
“Many effective reward programs for sales forces have both monetary and non-monetary components,” agrees David Heazlett, principal at HR and financial consultancy, Mercer. “More and more we are finding that people are prepared to take a more holistic view and understand how they fit together.
“Undertake some ‘employee sensing’ to understand what is most valued by your sales force and why,” he says. “This may be different for different parts of your sales force. That is, compare [what motivates] your 22-year-old out-bound sales rep based in a call centre, with your 40-year-old key account manager.”
The key mind-shift here is not thinking of your rewards program as the lone dangling carrot that keeps your team showing up for work, but as a way to boost the motivation of a sales team intrinsically driven by an autonomous workplace that provides the opportunity for mastery while fulfilling the purpose motive.
Achieving optimal, lasting motivation is about understanding and embracing the human element, says Pink. “The big take-away here is if we start treating people like they’re people and get past this ideology of carrots and sticks, I think we can actually build organisations and work lives that make us better off.”