Thirsty Alexis

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Motivating people: Getting beyond money


The economic slump offers business leaders a chance to more effectively reward talented employees by emphasizing nonfinancial motivators rather than bonuses.

Martin Dewhurst, Matthew Guthridge, and Elizabeth Mohr

Business Technology, Strategy article, Motivating people Getting beyond money

 

Companies around the world are cutting back their financial-incentive programs, but few have used other ways of inspiring talent. We think they should. Numerous studies have concluded that for people with satisfactory salaries, some nonfinancial motivators are more effective than extra cash in building long-term employee engagement in most sectors, job functions, and business contexts. Many financial rewards mainly generate short-term boosts of energy, which can have damaging unintended consequences. Indeed, the economic crisis, with its imperative to reduce costs and to balance short- and long-term performance effectively, gives business leaders a great opportunity to reassess the combination of financial and nonfinancial incentives that will serve their companies best through and beyond the downturn.

A recent McKinsey Quarterly survey underscores the opportunity. The respondents view three noncash motivators—praise from immediate managers, leadership attention (for example, one-on-one conversations), and a chance to lead projects or task forces—as no less or even more effective motivators than the three highest-rated financial incentives: cash bonuses, increased base pay, and stock or stock options. The survey’s top three nonfinancial motivators play critical roles in making employees feel that their companies value them, take their well-being seriously, and strive to create opportunities for career growth. These themes recur constantly in most studies on ways to motivate and engage employees.

There couldn’t be a better time to reinforce more cost-effective approaches. Money’s traditional role as the dominant motivator is under pressure from declining corporate revenues, sagging stock markets, and increasing scrutiny by regulators, activist shareholders, and the general public. Our in-depth interviews with HR directors suggest that many companies have cut remuneration costs by 15 percent or more.

What’s more, employee motivation is sagging throughout the world—morale has fallen at almost half of all companies, according to another McKinsey survey—at a time when businesses need engaged leaders and other employees willing to go above and beyond expectations. Organizations face the challenge of retaining talented people amid morale-sapping layoffs that tend to increase voluntary turnover over the medium term. Often, top performers are the first to go. Strong talent management is critical to recruit new ones from, for example, the financial sector, who have been laid off from their employers or feel disenchanted with them.

Yet while 70 percent of organizations have adjusted their reward-and-motivation programs during the past 12 months or plan to do so, relatively few have gone beyond the direct management of costs. Two-thirds of the executives we surveyed cited cost reductions as one of the top three reasons for the changes; 27 percent made changes to increase employee motivation; and only 9 percent had the goal of attracting new talent. Regional differences were striking. Forty-five percent of the respondents in developing markets, where economies have proved more robust, cited employee motivation as a key reason for modifying incentives, compared with only 19 percent in the United States and Western Europe, where the crisis hit hardest.

Even though overall reliance on financial incentives fell over the past 12 months, a number of companies curtailed their use of nonfinancial ones as well. Thirteen percent of the survey respondents report that managers praise their subordinates less often, 20 percent that opportunities to lead projects or task forces are scarcer, and 26 percent that leadership attention to motivate talent is less forthcoming.

Why haven’t many organizations made more use of cost-effective nonfinancial motivators at a time when cash is hard to find? One reason may be that many executives hesitate to challenge the traditional managerial wisdom: money is what really counts. While executives themselves may be equally influenced by other things, they still think that bonuses are the dominant incentive for most people. “Managers see motivation in terms of the size of the compensation,” explained an HR director from the financial-services industry.

Another reason is probably that nonfinancial ways to motivate people do, on the whole, require more time and commitment from senior managers. One HR director we interviewed spoke of their tendency to “hide” in their offices—primarily reflecting uncertainty about the current situation and outlook. This lack of interaction between managers and their people creates a highly damaging void that saps employee engagement.

Some far-thinking companies, though, are working hard to understand what motivates employees and to act on their findings. One global pharmaceutical company conducted a survey that showed that in some countries employees emphasized the role of senior leadership; in others, social responsibility. The company is now increasing the weight of engagement metrics in its management scorecard so that they are seen as core performance objectives. One biotech company has reframed the incentives issue by putting the focus on “recognition” instead of “reward” in order to inspire a more thoughtful discussion about what motivates people.

The top three nonfinancial motivators our survey respondents cited offer guidance on where management might focus. The HR directors we spoke with, for example, emphasized leadership attention as a way to signal the importance of retaining top talent. When one global pharma company’s CEO was crafting corporate strategy this year, he convened several focus groups of talented managers to generate ideas about how to create more value for the business. With the same aims, a leading beverage company asked every executive committee member to meet with the critical people in their own product groups.

One-on-one meetings between staff and leaders are hugely motivational,” explained an HR director from a mining and basic-materials company—“they make people feel valued during these difficult times.” By contrast, our survey’s respondents rated large-scale communications events, such as the town hall meetings common during the economic crisis, as one of the least effective nonfinancial motivators, along with unpaid or partially paid leave, training programs, and flexible work arrangements. While communication is critical, attempts to convey messages about the state of the business often have some spin, one HR director told us.

A chance to lead projects is a motivator that only half of the companies in our survey use frequently, although this is a particularly powerful way of inspiring employees to make a strong contribution at a challenging time. Such opportunities also develop their leadership capabilities, with long-term benefits for the organization. One HR director in the basic-materials industry explained that involvement in special projects “makes people feel like they’re part of the answer—and part of the company’s future.” A leading company from the beverages industry, for example, selected 30 high-potential managers to participate in a leadership program that created a series of projects designed and led by the participants. “Now is the time to swim upstream and invest more in our high potentials,” said the HR director, when launching the program this year.

With profitability returning to some geographies and sectors, we see signs that bonuses will be making a comeback: for instance, 28 percent of our survey respondents say that their companies plan to reintroduce financial incentives in the coming year. While such rewards certainly have an important role to play, business leaders would do well to consider the lessons of the crisis and think broadly about the best ways to engage and inspire employees. A talent strategy that emphasizes the frequent use of the right nonfinancial motivators would benefit most companies in bleak times and fair. By acting now, they could exit the downturn stronger than they entered it.

About the Authors

Martin Dewhurst is a director in McKinsey’s London office, where Matthew Guthridge is an associate principal and Elizabeth Mohr is a consultant.

Source: McKinsey Quarterly

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6 Comments»

  the count wrote @

That’s pretty much everything I despise about working in big companies. The small (20 or fewer employees) anyways you have constant attention from the Big Boss(es) all the time. So the only thing left that I need is more money, please. I work at a job for money, not praise, not attention, but M-O-N-E-Y.

Seriously – if you find yourself being motivated more by praise than cash rewards, try working for a smaller firm. At the smallest companies, if you do real well, you get both!

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  Alexis wrote @

Thanks for the comment.

I have seen many employees leaving their big companies as they were not fairly recognized for their contribution even though they were compensated with good bonuses and perks. However, you also often find unmotivated employees at small companies in which they are not recognized for their contributions by their managers. And thus, size of the company might matter in some aspects since the communication between employees and leaders occurs more often at small ones. But what matters is the progressive leadership in which leaders make appropriate decisions concerning rewards that are immediate and those that enhance the long-term well-being of employees. If the leaders at big firms works side-by-side with their employees while recognizing the importance of consistent and clear communication of the vision and values of the company through multiple methods.

It certainly is true that money is a significant component that motivates people. But we are not talking about extreme situations here- whether the money is the “only” motivational factor or not.
Ideally, the company needs to provide a good mix of monetary reward and recognition. Because recognition is a vital tool to motivate an employee to stay with an organization and be a value added contributor.

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  the count wrote @

That’s where I’m obviously very different from “most people”. I view compensation, especially bonuses, as a statement in itself of how much management does or does not approve of my performance.

Then again, I don’t think I’ve *ever* liked verbal praise, even as a child. Actions have always meant more to me than words – don’t waste my time with words, show me that you mean it. When it comes to employment, show = money.

But, as the study you refer to in your blog shows, I’m rather exceptional in that regard 😛

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  Robert wrote @

What I find interesting about when people make statements about money such as, “money isn’t everything” or something similar is that they usually have more than enough to satisfy both their basic needs and most wants. While I will agree that money does not buy happiness per se, I do believe it can have a tremendous influence on how empowered a person feels when it comes to making choices and having the ability to buy but choosing not to. Depending on what position and the company you work for, praise can become rather mechanical and more protocol than heartfelt especially with many consulting firms teaching coaching in their feedback processes. Ultimately, I think the old adage rings true that the answer lies somewhere in the middle whereas the McKinsey Quarterly (or at least my interpretation of their study) has more do with the extremes.

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  Alexis wrote @

Robert-

Thanks a lot for sharing your insightful viewpoint. I certainly agree with you that the answer underlies somewhere in the middle. Both of monetary and non-monetary components at workplace in terms of rewards are important, and they can be leveraged in balance with a good leadership.

What makes me think from reading your comment, however, is the reason for tendency to think in extremes, like black-and-white thinking. For instance, as you mentioned, some might say “money is everything” or “money is not everything”. Most people routinely engage in this type of thinking process. Any thoughts on why most of people seem to have two extreme points on the spectrum of possibilities?

Thanks again,

Alexis

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  Robert wrote @

Alexis,

While my opinion is nothing more than a personal anecdote, it has been my observation that people like to think in extremes because they can be readily classified. However, I would venture to say that most fall within various “shades of grey”. Additionally, since we can all agree for the most part that both extremes are not a desirable way to live, it leads me to believe that this article has more to do with notional theory than a true sample of what motivates employees. Would you not agree that most companies more closely resemble a hybrid utilizing praise and monetary incentive rather than one or the other?

Best regards,
Robert

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