“Barclay’s profits down 32% to £5.2bn but bonuses and incentive awards up by 10% to £2.4bn. So incentives do what exactly?” He might well ask.
I have long thought that there appears to be an anomaly in the use of financial incentives which seemed odd, in that sometimes they appeared to work effectively and then at other times they had little or no effect on performance.
The use of incentives in the financial services sector seems to add to this anomaly, in that, here we have people shovelling other people’s money around, buying it at one price and selling it at another hopefully higher price and making a “profit” for the bank.
Whether these “incentives” are actively linked to performance or are merely a large sun allocated at the end of the financial year for a job well done, I am not sure but it would seem to me that it is more likely to be the latter.
Over many years I have experienced incentives and bonus scheme both linked to performance and also discretionary and while, as far as I am aware, no-one rejects them as inadequate, they don’t seem to have the effect that the business both hoped for or expected.
For some time I have been suggesting that my Vistage members take a look at a remarkable video on YouTube: http://www.youtube.com/watch?v=u6XAPnuFjJc (ignore the advertisement at the start!) by US economist and author, Dan Pink in which he explains the research which has shown that in many cases not only do incentives not work but in some situations they actually have the opposite effect.
This is dramatic stuff and turns the whole concept of “pay more, get better performance” on its head.
I recall a salesman we once employed who never earned, in an open ended commission scheme, more that 10% over and above his salary even if that 10% had been earned in the first week of the month. When I asked him why this was he said that he was content with a 10% increase in his compensation as that paid for the extras he wanted.
Dan Pink demonstrates that for a task which is completely routine and mechanical then financial incentives can work and I have seen that in operation in a factory environment.
However when there is a mere modicum of cognitive skill needed to complete the task is when the anomalous situation of lower performance kicks in.
His solution? People look for three things, knowingly or unwittingly, in their working existence to gain maximum effect and hence satisfaction from their work and they are:
· Autonomy – give people the freedom to work in the way that suits them with consequent accountability and performance will improve.
· Mastery – people want to demonstrate their abilities and again need to be given the freedom to express them fully.
· Purpose – the ultimate reason for completing the task and indeed the whole ethos of the business must be linked to an overarching purpose and not just a motive for making profit.
Pay your people the compliment of believing that they are thinking human beings, give them the freedom to express themselves and watch them and the performance of the business grow.
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