Forster N. - Maximum performance (2005)(en)
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Reinforcement
Exercise 4.2
At the beginning of this chapter, it was suggested that there are at least 30 ways of providing positive reinforcement to employees, other than money. Before reading through the next section, how many can you think of?
Research conducted over a 50-year period has highlighted the impact that positive feedback can have on motivation and work performance. Strictly speaking, this is not a theory of motivation, but reinforcement principles encapsulate a useful set of practical ideas, because human beings are hardand soft-wired to keep doing things that have positive outcomes, such as feelings of pleasure (hedonism), and will avoid those things that result in negative outcomes, such as punishment. Eventually, people will stop doing things that have neither rewarding nor punishing outcomes. The research also suggests that reinforcement and feedback on performance should, whenever possible, be positive. Negative feedback might be required on occasions, but this should only be used as a last resort. If you do have to give negative feedback to employees, then remember the old adage, ‘Praise in public. Punish in private’. We saw in the examples cited in Chapter 3 that this type of feedback should then lead to appropriate remedial action, thereby avoiding future repetitions of the action that caused the negative feedback in the first place. At all times, the focus should be on rewarding good behaviours that employees can aspire to, not punishing people.
Praise or personal encouragement (from the Latin word for the heart, cor), are simple but highly effective ways of providing positive reinforcement. It has even been reported that the incidence of ‘thankyous’ is far higher in successful innovative companies than in struggling lowinnovation firms (Kouzes and Posner, 1997: 279). Clearly, it is not practical to reward every show of effort and desired behaviour, and the research does indicate that the most effective way of rewarding performance is through ‘intermittent reinforcement’ (Deci, 1972). Positive intermittent reinforcement can come in many forms, including giving informal and formal acknowledgments for doing a good job, celebrating employees’ successes, saying ‘thank you’ and ‘well done’, listening actively, asking questions, asking employees for suggestions and advice, involving quieter employees in group meetings, smiling, using your SOH, treating all of your staff equitably, being a good corporate citizen, being honest, walking the talk, practising what we preach, being a leader that people look up to and respect, providing employees with
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more responsibility, providing opportunities for self-development, delegating authority, offering flexible work hours, breaks and job-shar- ing, providing dinners to mark special occasions or notable successes at work, free breakfasts, dinners or lunches, small Christmas and birthday presents, after-work wine and cheese parties, and providing food and refreshments during long meetings. Are there any other positive reinforcers that you could add to this list?
Attributions
It is no secret that I have always attributed the success of the Virgin Group and its brands to the people who work for our company. We have always had a policy of hiring good motivators and good businesspeople. We always look out for executives who put their people first and themselves last. So, in many ways champions are selfless. They’re also quick to put their faith in others and their ideas.
(Richard Branson, during a talk at the ‘The Centre for the Mind’ award ceremony, Melbourne Australia, 10 December 2003)
In the late 1980s, Tom Peters developed something he called ‘The Boss Test’, which he used on management audiences in the USA, the UK and Australia. Peters would ask the participants, often including senior managers and CEOs, this question: ‘Are you concerned about what your employees might be getting up to while you are attending this conference?’ Invariably, 90 per cent of his audience would put their hands up, indicating that they did indeed have concerns about this. Peter’s reply would be instantaneous: ‘I have some news for everyone who put their hands up. You are bad bosses! If you didn’t put your hand up, congratulations, you are good bosses.’
Not surprisingly this counterintuitive and, to some participants, impertinent assertion was not always well received. However, the point Peters was making remains as valid now as when he first made it. He argued that the true role of leaders is to trust their employees enough to allow them to run with the ball, even when they were not physically present to keep an eye on things. In other words, he was suggesting that leaders and managers needed to move away from a ubiquitous command-and-control style of management to what was then a ‘new’ empowered style of leadership. At the height of his popularity as a corporate speaker, Peters often added this comment: ‘Most employees are intelligent, hard working and motivated, until they walk through the front door of your organization to start work for you,’ emphasizing the point that a lack of employee motivation is not innate. Almost all new employees start out motivated, in most instances are trustworthy, and will take on additional responsibilities if offered the chance to do this. Consequently, demotivation is usually
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a learnt response to the conditions they encounter or the experiences they have at work.
All humans also have an inbuilt tendency to attribute blame for good and poor performance. People who have a strong internal locus of control will generally attribute poor performance to themselves and learn from their mistakes. People who are more ‘outer-directed’ will tend to blame external forces: their boss, colleagues, subordinates, ‘the system’, other work groups, work pressures, the weather, unfavourable astrological conditions, the family dog and so forth for their poor performance. Such attributions can have a powerful influence on how leaders and managers view the motivations and abilities of their followers. How we view other people’s basic natures can also have a profound effect on both our ability to motivate others and the manner in which we do this. For example, below are two descriptions. Which one best describes your assumptions about the ‘human nature’ of your employees?
Description 1
Most employees inherently dislike work. They will grasp every opportunity to avoid it. Since they dislike work, they must be ordered about, controlled, watched and cajoled into performing. Punishment should be applied if they make mistakes or fail to achieve work tasks that they have been set. They will avoid opportunities for self-improvement and learning. Most employees are not interested in doing anything more than the formal requirements of their job and are largely motivated by money.
Description 2
Most employees enjoy coming to work, if it is challenging and rewarding. If people are given the opportunities, they will exercise self-direc- tion and self-control. They will seek more responsibilities at work if they are encouraged to do this. They will pursue opportunities for selfimprovement and learning. Most employees are willing to do more than the formal requirements of their job and are not, primarily, motivated by money. They have many ideas and innovations to offer their organizations, and will contribute these if given the right encouragement, opportunities and rewards.
Known as McGregor’s ‘Theory X and Y’, such assumptions can have a significant influence on the strategies that leaders and managers use to motivate their staff (McGregor, 1987). Someone who adheres closely to Description 1 (‘X’), is likely to have a command-and-control ‘stick’ style of leadership and spend an inordinate amount of time monitoring and watching their staff. Someone who adheres closely to Description 2
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(‘Y’), is likely to have an empowered ‘carrot’ style of leadership, and will believe in participative decision making, self-managing teams and creating an environment where employees are encouraged to take the maximum responsibility for achieving work goals and their personal self-development. This is not to say that the X style of leadership is always inappropriate. In certain circumstances, such as in a crisis or emergency, it will often be right to adopt a more directive and authoritarian approach. However, in most organizational settings and situations today, the second approach produces consistently better results.
This suggestion brings us to the idea of the ‘Rubber Band’. If you take a rubber band and stretch it between the thumb of one hand and the forefingers of your other hand, you will find it impossible to ‘push’; it simply loses its tensile strength and sags. However, if you pull the rubber band with your thumb, your fingers will follow after a very short delay. This simple exercise reminds us of one of the important principles of leadership highlighted in Chapter 1. We saw that managers are people who generally try to push their staff towards achieving objectives they have set for them. In contrast, leaders are able to pull their staff towards the ways, roads or paths that they have agreed with them and then leave them alone to get on with this in their own way and at their own pace. For example, in June 1944, Dwight D. Eisenhower, the Supreme Allied Commander during World War II, was involved in a briefing session with his senior officers just before the D-Day landings in France. He placed a piece of string on the table and said, ‘You can only pull a string – not push it. You must lead your soldiers from the front – not push them from the rear.’ Can you think of ways to encourage your staff to pull towards you (without overextending them), rather than constantly pushing them?
Money as a motivator
The happiest time in a man’s life is when he is in red hot pursuit of a dollar and has a reasonable chance of overtaking it.
(John Billings, US humorist)
Pay people peanuts and you’ll end up employing monkeys. (Old saying)
Common sense dictates that money should be a motivator for employees, and if we don’t have very much, it should act as a powerful motivator in life. Movies like the iconic Wall Street, Other People’s Money, Indecent Proposal and numerous heist movies over the last 20 years all reinforce the idea that money can have a profound influence on people’s behaviour. Worldwide, international crime was the fastest
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growing and most profitable business in the world during the 1990s, and corruption and fraud continue to be widespread in most countries and in many business organizations (see Chapter 12). And if organizations were perfectly rational, the pay of all employees should be tied directly to both their individual performance and to their company’s performance on indicators such as average return on shareholders’ equity, the price of the firm’s common stock and other profitability parameters. Many employers also believe that money is the single most powerful work motivator, particularly amongst blue-collar and contract employees. If this were true, the best way to increase employee motivation and performance would be to increase their pay on a regular basis; by paying someone twice as much, their motivation levels should double. If only it was this straightforward.
Paradoxically, while people on average and low incomes are routinely exhorted to show ’restraint’ and ‘moderation’ in their wage claims, top business leaders have seen their incomes, in both relative and absolute terms, increase enormously over the last ten years, without the slightest evidence that this has improved their motivation, work performance or the productivity and profitability of the companies they led. In fact, the greatest productivity gains made amongst workers in the 1980s and 1990s in the USA, Europe and Australia were among the lowest paid groups, while those who enjoyed large pay increases showed little improvement in their performance and productivity. And, as we will see in Chapter 12, a growing number of ‘fat-cat’ executives who have been free to set their own salaries, and who enjoyed unfettered access to stock options and ‘performance bonuses’ during the 1990s, have been complicit in some of the greatest corporate fraud and corruption scandals in history (McLean and Elkind, 2003; Haigh, 2003; Loomis, 2001; Kitney and Evans, 2000; Westfield, 1999; Gray, 1999; McLean, 1998).
Greed is the greatest motivator. I’ve thought about this a lot, and all that matters is money. You buy loyalty with money. This touchy-feely stuff isn’t as important. That’s what drives performance.
(Jeff Skilling, disgraced former Chief Operating Officer of Enron. The company was declared bankrupt at 2.00 am on 2 December 2001, with debts estimated at $US38 billion.)
However, while money and other forms of financial rewards are important and necessary, it is consistently rated as being of secondary importance in rankings of what motivates most people at work. As Kouzes and Posner have observed:
After sifting through mountains of numbers, dozens of surveys and years of research studies, Inc. magazine’s researchers determined that people, ‘want the same things they’ve always wanted’. Even though job security is
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increasingly tenuous, ‘interesting work’ has a dramatic 22-point lead over ‘high-income’, when it comes to importance to workers. A survey of Industry Week readers found that quality of leadership means more than dollars as a source of motivation for today’s workforce. The National Study of the Changing Workforce reports that ‘personal satisfaction for doing a good job’ is the most frequently mentioned measure of success in work life – voted nearly two to three times more often than ‘getting ahead’ or ‘making a good living’.
(Abridged from Kouzes and Posner, 1997: 131)
Another survey, by Jordan-Evans and Kaye, asked 10 000 US employees why they stayed with a particular employer. The top five responses were, in ranking order, ‘exciting, challenging work’, ‘career growth, learning and development’, ‘great people to work with’, ‘fair pay and benefits’ and ‘a good boss’ (Jordan-Evans and Kaye, 2002). Similar results have been found in surveys of managers and professionals over the last 20 years (for example, Furnham, 1994). It was also once said that ‘Money won’t buy happiness, but it will pay the salaries of a large research staff to study the problem.’
Overwhelmingly, the most important motivators are intrinsic to the work itself. However much it may run counter to conventional management thinking, the reality is that money is but one motivator amongst many, and when it does become the only motivator, sooner or later this will lead to problems. A pleasant working environment and organizational culture, variety, autonomy and control, opportunities for career advancement and personal development, a degree of job security and good leadership are equally important motivators for most employees. For example, in your current job situation would you prefer to have a $2000 bonus, or an extra week’s holiday this year? A crèche at work, and/or flexible working arrangements that enable you to care for your children, or $5000 extra a year in salary? More time with your family, or a promotion? Put this way, it is easy to see that money is but one motivator amongst others. In fact, several recent surveys have shown that many professional employees do not believe that money buys job satisfaction, and many would now willingly swap future pay rises for greater job security, more control over their working hours and a better balance between work and family commitments (e.g. Megalogenis, 2002).
Money has never made a man happy yet, nor will it. There is nothing in its nature to produce happiness. The more a man has, the more he wants. Instead of filling a vacuum, it makes one.
(Benjamin Franklin, co-author of the American Constitution)
Other research has shown that there is only a weak long-term relationship between pay increases and work performance. Although there is a short-term halo-effect after receiving a pay rise or bonus, this soon
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dissipates. The power of money as a motivator is always short-lived and, more importantly, it is an entirely extrinsic motivator when what many organizations need these days are high levels of intrinsic motivation from their employees. Herzberg (1959) used the analogy of an electric battery to highlight the problems of relying only on external financial motivators. Extrinsic monetary rewards can only have shortterm or temporary effects, because employees’ ‘batteries’ will eventually run flat, and will need to be recharged with an external ‘boost’ of money. Only when employees have their own internal self-recharging ‘generators’ can true motivation be achieved. Furthermore, people whose only motivation to work is money will never contribute more than the minimum required to obtain a financial reward. It is only when people are intrinsically motivated – by the job itself – that they will give 100 per cent.
This suggests that extrinsic motivators like pay can actually reduce intrinsic motivation, because the use of external rewards to increase motivation can cause a shift in what psychologists have called ‘internal locus of control’. It also means that the only hold a company has on an employee is a financial one, and there will always be another company who will pay more money for doing the same job (Caulkin, 1993). Furthermore, the more affluent people are, the less effect money has as a motivator at work. This suggests that the idea that organizational leaders should be paid huge sums of money and offered other inducements, such as stock options, to improve their motivation and performance represented the biggest corporate con trick of the 1980s and 1990s.
Performance related pay and shareholding
About two-thirds of large UK companies and almost all major US companies now use some form of individual performance related pay (PRP). In countries like Australia that ‘discovered’ PRP after industrial relation reforms in the 1990s, it spread rapidly, with more than 80 per cent of all managers now on some kind of PRP (Long, 2000). The popularity of PRP systems is based on the widespread belief that financial incentives can be motivational if they are closely tied to individual effort and performance. There is one problem with this common-sense assumption: most of the evidence indicates that PRP systems often don’t work (for example, Kohn, 1993a, b). For example, in a detailed review of these schemes in the UK, one researcher commented that ‘there is a singular lack of any hard evidence which proves that these kinds of incentive schemes have improved employee performance over and above any improvements which could have been forthcoming in
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the absence of such schemes’ (Smith, 1993). Another survey, by the Institute for Manpower Studies in the UK, showed that ‘the benefits most often claimed for PRP are not met in practice. Incentive pay doesn’t motivate – rather the reverse. It persuades neither highperformers to stay nor poor-performers to leave. It doesn’t improve organizational culture. And, as to whether PRP rewards fairly, employees are not more than neutral’ (cited by Caulkin, 1993).
Why might this be? First, employees are rarely consulted in the design of these systems and many regard them as being unfair in operation, reflecting a widespread perception that many managers do not appraise staff and administer these selective rewards in a fair and equitable manner. Second, many of these schemes have only been introduced for select groups of personnel (for example, senior managers) and, consequently, this can cause feelings of inequity and demotivation amongst other groups of employees in organizations. Third, there is also the danger of the costs of these schemes, with some companies becoming lumbered with crippling remuneration structures (Caulkin, 1993). Fourth, organizations that place too much emphasis on PRP systems can create unforeseen problems for themselves in the future. For example, the Royal Commission on the Australian ESSO Longford explosion in 1998 concluded that the performance-based pay systems that supervisors were on (constituting as much as 40 per cent of their pay), were ‘a major contributor to the slack safety standards existing in the company at the time. The performance-based systems meant that staff were paid according to their outputs and, as a result, insufficient attention was paid to the potential dangers of overloading the plant’s operating systems’ (cited in The Australian, 12 October 2000).
Although many commentators have been sceptical about the efficacy of pay for performance, it has been suggested by others that financial rewards can foster internal motivation when used in the right way. If these reinforce the link between exceptional performance and employee rewards, then intrinsic motivation can be enhanced. This implies that external rewards, financial or otherwise, need to be closely aligned with the actual task performance and productive outputs of staff. PRP schemes will only work if rewards are allocated on the basis of clear, well-understood and equitable principles for rewarding above-average performance. Furthermore, the practice of share/stock holding has grown in popularity in recent years, and the research evidence suggests that companies who involve their employees in these schemes are more successful than those who do not do this (for example, Collins, 2001; O’Reilly and Pfeffer, 2000; Stamp, 1996; Hanson and Bell, 1987). There is also some evidence that these schemes can encourage greater loyalty and a sense of belonging amongst employees (Lardner, 1999).
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In the USA, more than 80 per cent of the ‘Top 500 companies’ have share ownership schemes for their employees (Clifford, 2001) and profit sharing is one of the faster-growing reward practices worldwide. Many of the top companies in Australia, such as Telstra and BHPBilliton, have employee share ownership schemes in place. A survey in Australia, by the consulting firm KPMG, revealed that 94 per cent of 800 companies that had adopted employee share schemes reported benefits in productivity, employee interest and motivation, wage restraint and company profitability. Four out of five large Australian companies either have introduced or are planning to introduce employee share schemes (Sprague, 2002). For example, the Australian software developer, Mincom, announced that it was creating six million stock options for its staff in July 2000. The company’s CEO, Alan McElrae, said that this was ‘a major psychological investment for staff in the company and a powerful motivational tool’ (cited by Long, 2000). Caltex Australia introduced broker-free tax-exempt shares in July 2000 to encourage greater staff loyalty and motivation (Matterson, 2000). The former Australian Industry Secretary, Peter Reith, also launched a campaign on 22 July 1999 to promote the concept of share ownership, arguing that providing employees with a financial interest in their companies would be particularly effective in increasing motivation and commitment.
However, there is always a risk that stock options can become ‘golden-handcuffs’ if a business’s share price falls below the price at which they were purchased. This was the main reason why Steve Ballmer abolished stock options at Microsoft in 2003, replaced these with grants of restricted stocks and created a secondary internal company market to sell these. The company offered their employees $1.11 on these 345 million stock options, a move that was a big hit with Microsoft employees. Last, when companies have been bankrupted, holding stock or pensions linked to stock prices can result in the loss of employees’ entire pension entitlements, as happened to Enron and Worldcom employees in the USA in 2001. As we will see in Chapter 12, they can also enable crooked CEOs and boards to make self-serving, unethical and illegal business decisions that often damage companies in the medium to long term but which, in the short term, artificially ramp up the value of their stock options (Haigh, 2003).2
Employee share ownership should be for the shop floor, not just Mahogany Row. It should be for people on $A30 000 a year not just $A300 000 a year. Owning a share in your business should be as much the Australian dream as owning your own home.
(Tony Abbott, former Australian Federal Workplace Relations Minister, cited in
The Australian, 31 January 2001)
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Another trend in organizations in recent times has been to link part of an employee’s remuneration package to the development of their skills and knowledge levels. This form of remuneration appears to be particularly suited to organizations that have short product life cycles, speed to market concerns and a need to innovate quickly in order to remain competitive (Lawler, 1993). This method of remuneration is also consistent with several theories of motivation that we looked at earlier, including ERG, goal-setting, equity, expectancy and reinforcement theories. Skills-based pay can be used as either an alternative or an adjunct to job and performance related pay, where remuneration is based on employees’ skill levels and/or how many jobs they can perform. In some companies, such as Hewlett-Packard, General Electric and Harley Davidson, pay is linked to the acquisition of additional skills at work or those that have been acquired through external education and self-development. Such schemes encourage perpetual learning and self-improvement, and research evidence indicates that such schemes do lead to improvements in motivation and performance levels (ibid.). However, there is a potential downside to such schemes. For example, what can an employer do when an individual has learnt all the skills that are required in a job or becomes overqualified for a particular position? In short, while money is important, and all organizations need to pay competitive wage rates to attract and retain highquality staff, its importance as a motivator should not be overstated. In reality, it can actually be counterproductive to become overreliant on financial incentives to motivate employees and, while they are certainly useful, they are only one form of motivation amongst many others.3
Non-financial incentives and rewards
What other incentives and inducements can organizations provide to attract and retain the best staff? Many of the companies regarded as ‘the best to work for’ in the USA offer a number of incentives and flexible benefits to retain good staff. In 2000, for example, of the top 100 companies in this category, almost all offered bonuses for exceptional performance, more than 70 offered profit sharing, 26 offered on-site day care for employees’ children, 29 offered concierge services such as dry-cleaning, 47 offered domestic-partner benefits to same-sex couples and 31 offered fully-paid employee sabbaticals. Amongst the other motivational perks offered were stock or equity options, flexible working arrangements for employees with school-age children, funds for onand off-site development courses, state of the art fitness and/or health centres, health and wellness programmes, all or part health premium coverage, clothing allowances and on-site hair salons, florists