The best way to motivate employees

Unraveling this mystery has challenged companies in every industry for decades.  Managers can utilize “carrots” (e.g., increased pay, promotion), “sticks” (e.g., censure, demotion) or insecurity (e.g., threaten recession-induced layoffs) to increase performance.  However when it comes to some individuals and cultures, these strategies often fail to yield the desired results.   New research summarized in Harvard Business School’s Working Knowledge newsletter outlines a better approach.  The study’s author, Professor Ian Larkin, believes that firms can better motivate employees by leveraging the desire for peer recognition. 

Keeping up with the Joneses

You don’t have to be a psychologist to know that people instinctively measure their own standing, satisfaction and performance relative to others.  In a variety of studies, Larkin found that this trait is the most powerful workplace motivator.  According to Larkin, “…in deciding how hard we work and how well we think we’re performing, social comparisons matter just as much [as financial incentives].” Comparing themselves to their peers incites employees to work harder in order to be recognized or to maintain prestige. Absolute compensation does matters, but only to a point.

Follow the leaders

Larkin studied the impact of social comparison at a large enterprise software firm.  Hundreds of salespeople were offered one of two reward choices.  One option was to defer receiving a commission on a sale till the end of a financial period.  Deferral enabled the salesperson to receive a bonus payment but prevented them from recording a sale for a “Club” membership, a select group of the highest performing sales people. The other option was to record the sale and commission right away.  This choice disqualified the salesperson from the commission bonus but improved their chances of attaining “Club” membership, which though prestigious, carried no meaningful financial benefit.

The findings were telling.  Salespeople would forego the opportunity to make extra money if doing so would earn them positive recognition from their peers. Specifically, a sales representative was willing to give up nearly $30,000 in bonus (approximately 5% of their pay) to join the “Club.” Larkin believes club members “were not more likely to be promoted, leave for a better job, or make higher commissions in the future. It really was all about the recognition of and comparison with their peers, and many of them were willing to pay for it.”

The downside of comparison

On the other hand, social comparison also can lead to insecurity-driven cheating. Larkin studied author behavior in the large Social Science Research Network, an academic paper archive where authors can track statistics on how many times their paper has been downloaded, cited and viewed.  Researchers found that authors were more likely to download their own papers repeatedly when a colleague’s paper was performing especially well on the site, or when a very similar paper to an author’s was newly released and received significant downloads. “Again, what was surprising to us was how little we found in terms of the economic reasons for doing this,” Larkin says. “By far, the biggest predictor of this behavior was fear of being socially inferior to one’s peers.”

Management implications

This research has significant ramifications for talent management.   Companies need to more deeply consider the important role of peer comparison – now supercharged thanks to social networking – when designing compensation and measurement plans.  Paying each employee solely according to his or her performance can backfire, since it can lead to resentment or unethical behavior by workers who believe they are underpaid compared with their colleagues. In order to better motivate employees, firms may want to consider more uniform and standardized salary scales, combined with ancillary incentive programs and contests that exploit the positive effects of social comparison.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.


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