There is nothing wrong with the idea of money itself: it is simply a logical medium to enable the exchange of goods and services – it stops me trying to work out how many of my carrots to exchange for your goose.

But money as pay needs some careful thought.

We might break money for payment into three aspects to consider: as ‘hygiene’, ‘equity’, and ‘reinforcement’…and after that we’ll consider ‘joy in work’:

Hygiene: Frederick Herzberg studied the effects of financial incentives some time ago and observed that too little money can be a serious problem – we all need to cover the costs of our basic hygiene factors such as a roof over our heads, food in our bellies, clothes on our back and a feeling of security and acceptance in our society. It is highly demotivating not to have these covered. However, once these are in place, the provision of more money does not necessarily equate with more satisfaction.

Equity: The human being does not cope with injustice well! We all have a very strong inbuilt sense of fairness. So, once we’ve taken care of the hygiene aspect of pay, we must also cover equity. If you and I have a similar role but we are paid differently, then this WILL be a source of discord.

The more opaque the methodology surrounding compensation then the stronger the suspicions of inequality there will be. Note that a forward thinking American company, Menlo Innovations, takes transparency to such extremes that it posts employee salaries on its office wall! Whilst I am not saying we should go this far, if you find this idea objectionable it is worth asking yourselves why! If it is a fear of others realising how much you are paid as compared to them….then perhaps you fear you are on the positive end of an inequitable pay scheme.

Reinforcement: So, after covering hygiene and equity, we are left with the practise of contingent rewards: the offering of money (or some other perk) on a contingent basis in order to control how someone acts. Incentive/ bonus schemes sit squarely in this camp.

Alfie Kohn’s eye-opening book ‘Punished by Rewards’ explains the damaging effects of contingent rewards. He clearly sets out five major reasons as to why this is so, along with a depth of supporting research over many decades. In summary, contingent rewards:

• Punish: those that don’t meet the criteria will not get the reward and will be demoralised – what might be seen as damage caused by the fall out , or ‘friendly fire’;
• Rupture relationships: they interfere with the desire for collaboration and a sense of community. Competition makes others a potential obstacle to your ‘success’;
• Ignore reasons: they are lazy – they do not require any attention to the reason for the problem in the first place, meaning that the ultimate cause will not get resolved;
• Discourage risk taking: we do exactly what is necessary to get the reward, and no more. Research has shown that contingent rewards thwart innovation;
• Focus people’s energies on getting the incentive, not on doing the work…which leads to lots of highly undesirable side effects!

The ‘money’ paradox:

A number of major surveys have been carried out to compare what a worker looks for in a job with what their manager (and even their peers) thinks they are looking for. What is really interesting is that:

• the manager and peers rank ‘pay’ as being of number one importance to the worker; but
• the worker himself ranks ‘pay’ way down the list*, putting ‘interesting work’ first.

(* 5^th out of 10 ‘job factors’ in one study and 6^th out of 10 in another)

So the paradox is that ‘I’ think that interesting work is most important but, conversely, ‘you’ think pay is most important to ‘me’…which would explain many a management decision based on this erroneous belief about pay.

Joy in work:

It is also interesting to consider the results of surveys about why people are unhappy with their jobs. The main reasons that arise include lack of variety or challenge, conflicts with manager or peers, and too much pressure. Salary doesn’t register as a major issue.

It would be interesting to consider why people leave an organisation and consider how many cite the primary factor as being that they weren’t being paid enough.

It is worth thinking about the following from Alfie Kohn:

“Notice how many people, regardless of how they feel about their jobs, or even how they are paid, are apt to pour their souls into tasks that they pursue in their free time: making music, fixing cars, decorating rooms, puttering in a garden, and of course, tending to their children. This work is often hard and time-consuming, and it is done with no thought of remuneration. Overall, the point is that money isn’t the point.”

He proposes that, if we want people to want to come to work on a Monday then the first thing we must do is pay people well and fairly “and then do everything in your power to help them put money out of their minds.”...then, and only then, we can work on creating the conditions for authentic motivation.

In conclusion

As Deming wrote “Pay is not a motivator”.

Now, you might respond to this with “well, I get results from offering contingent rewards“…and I would reply “sure you do…you get people chasing the rewards on offer…whatever (and in spite of) the consequences for the system”. I would add that you can’t blame them for behaving so – this is merely a product of the environment that you have provided for them.

Just imagine what your organisation, and its people, together could achieve if they were 100% focused on the actual purpose of the organisation and its primary value streams.