Compensation, Motivation, and Incentives: Finding a Balance

100 dollar bill, the ultimate incentive

Most people’s number one complaint about their job is money. Any of these sound familiar?

  • I should get paid more because I’m so good at my job
  • Compared to others in my field, I should get paid more
  • For what I’m putting up with, I should be getting paid a lot more
  • Chuck is making X, so I should get paid at least that much
  • I haven’t gotten a raise in years, I’m due for one

Slice it up however you want, we always seem to complain about how much we’re paid. And we should: it’s the reason we go to work every day.

Sure, there are a bunch of happiness studies out there that say money makes a difference only up to a certain point (one study pegs it at $40,000). That after that you can’t get any happier by just increasing the amount of money you make.

If that’s the case, why are so many people making more than $40k/year still complaining? I believe it has to do with motivation and incentives.

Does Compensation Drive Motivation?

In my opinion, it does—at least for most of us. There are some people that have an innate sense of drive regardless of the money you give them. It’s part of their DNA.

Those people will continue to push ahead regardless of what their compensation is or how they feel about it. But these are outliers.*

Think back to a time when you either started a new job or were given a significant raise/bonus at work. While part of you probably felt like it was well deserved (and I’m sure it was!), there’s always that other part that feels like we have to live up to the bump in pay.

Athletes go through this all the time—many admit trying “too hard” to live up to a big contract and see their performance suffer because of it.

But athletes have it easy: they know exactly what they have to do to make more money—they have to perform. And there are hundreds of statistics to define how they’ve performed. It’s very clear to everyone when someone has performed and when they haven’t.

Us non-athletes don’t have it so easy, and that’s one of the main reasons why we complain about money so much. It’s not so much that we just want more, it’s that we aren’t clear on what we have to do in order to get it.

When the path to increased compensation isn’t clear, the onus is on the employee to do one of two things: make the case for getting paid more or leave to go somewhere else where the pay is higher.

Most people assume the former is too hard and opt for the latter.

Incentives: The Missing Link

Traders have a very clear and defined payment structure: they have a salary and then they get a percentage of the money they generate for their firm.

So if their trades generate X amount of dollars, they’ll get a bonus that’s a percentage of X.  It doesn’t get any more cut and dry than that.

For everyone else, it’s a lot fuzzier. We have reviews and SMART goals and quarterly evaluations—all to determine how well we did. And even when we’ve been given high marks, it still doesn’t necessarily mean that our compensation will increase.

The key (and this is on management) is to incentivize employees in ways that also benefit the business as a whole.

Let me unpack that last sentence because it’s very easy to say but extremely hard to do. In a perfect world, managers set clear paths for employees to “follow.” If an employee follows that path (ie, performs), then they get some kind of additional compensation (say, a bonus). Management is happy to give up a little bit of cash because by having employees follow the aforementioned path, they are directly benefitting as well.

The bottom line should directly benefit from this incentivized behavior and should easily offset any bonuses handed out to employees.

Let’s go back to the trading example. If a trader makes $1 million (the path they want their traders to go down) and gets a $100,000 bonus because of it, then everyone is happy. The trader gets incentivized to keep making money and the firm just made $900,000.

Like I said before, this is a lot harder to do in practice than it is in theory. If you’re a copywriter or an art director, you aren’t going to find such a direct way to impact your company’s bottom line.

And you shouldn’t have to: that’s management’s job.

The Perfect World

Your employer tells you exactly what you have to do in order to get a nice bonus. You work hard at it and accomplish said goal. You get a nice bonus. The company gets more value out of you than the average employee and is happy to give you a cash bonus. Traders, athletes, and lawyers come to mind.

Again, this is extremely difficult to do. Have you had a job where you have clearly impacted the bottom line of your company? If so, did you use that example to make the case for more money?

*Oddly enough, these are also the people that tend to make more money than anyone else. Their focus is so resolute on just getting things done and doing them so well, that they are eventually rewarded for it. (Back)

Image by zzzack