A company has to systematically test its basic assumptions especially when it comes to motivating its employees – rank and file. If we had to invest in a company, wouldn’t you want to know that the employees of that company are highly motivated to produce more widgets for you or to save you more money on purchases or motivated to cut costs?
Although I will not be able to give you the single secret to motivation, I only would like to present you with some experiments that shed some light on what motivates us in an employer/employee relationship through experiments in Behavioral Economics.
For those of us lucky enough to live or have lived in the Northwest and experienced working with or buying from Costco at the Issaquah branch- next to Costco’s HQ – you probably saw first hand the energy and the customer service offered at that branch. Same goes for Microsoft, Nordstrom, Adobe, Amazon, Boeing, PACCAR, Nike, etc…
In Dan Ariely’s book PAYOFF, one of the research papers referenced titled Employee Recognition and Performance by Christiane Bradler, Robert Dur, Susanne Neckermann, and Arjan Non, their experiment shows that unannounced public recognition to employees causes a statistically and economically significant increase in performance.
One of the books referenced 1001 Ways to Reward Employees. The book confirms what almost every employee already knows:
‘…that recognition for a job well done is the top motivator of employee performance.’
Leadership of a company should understand that people differentiate between Intrinsic vs Extrinsic Motivation.
For example, in a experiment where blood donors were offered $7 every time they donated it actually decreased blood donation. The fact is we DO NOT donate blood for money – I mean some people do – but the overwhelming majority do it for intrinsic reasons. (Mellström, Carl, Magnus Johannesson. 2008).
I get it when you tell me a company’s motto is “Don’t be evil!” or “Do the right thing”. It’s obvious that creative work is not only about the code, it’s what the code does to make our planet better and how it changes people’s lives. How the human potential can be unleashed. Huge cash bonuses and perks for that matter (extrinsic motivation) will not spark the creativity of an engineer or unleash the intelligence of an investment manager – but if you insist, do it with a smile and a firm handshake or public acknowledgement (intrinsic motivation).
Maybe Warren Buffett singing and praising his secretary, Debbie Bosanek, in a ‘My Way’ duet with Paul Ankah will change your mind about intrinsic motivation:
[To the tune of My Way] The true brain, guts, and glue. Debbie that's you! You get things done here. You see, we all agree: she's royalty! Queen of our palace, heeding each call, Deb does it all!
In an interview with Peter Lynch recently, one of the best investment managers of our time averaging a 29% annual return over 13 years, he was asked by the host why he quit at age 46. Peter said that he had only two gears, OVERDRIVE and OFF. He wanted to spend time with his family, and didn’t want to run the fund at 1/4 or 1/2 gear. What follows is so profound because it shows you the intrinsic motivation of Peter Lynch in running Magellan:
‘…one out of every hundred Americans was in Magellan… it’s a lot of responsibility… if you run a fund at Fidelity it’s the average folks, which is a wonderful feeling when it works.’
Peter Lynch was doing this for his investors and their success was what motivated him.
In an experiment, Dan took 87 participants and promised payment if they performed exceptionally well on an array of tasks that demanded rudimentary cognitive skills.
- A third were told that they’d be given a small bonus (equivalent to what a participant would receive for a day’s work)
- A third were told they’d be given a medium bonus (equivalent to what a participant would receive for two weeks work)
- And a third a high bonus (equivalent to what a participant would receive for five months’ pay)
With hindsight always being 20/20, which of the participants performed the BEST? I can hear you screaming and jumping concluding that of course those that were paid the high bonus performed the BEST!
It turns out that people that were offered medium bonuses performed the same as those offered low bonuses. The ones offered the high bonus did worse than the other two groups. Surprised? Good!
Dan replicated the same study at MIT but this time added another set of participants that were asked to complete mechanical tasks. So you had participants promised to earn $60 (low bonus) and $600 (high bonus) if they completed tasks that required cognitive skills, and another set of participants promised the same amounts but are required to complete mechanical skills. As long as the task involved mechanical skills, the experiment worked as expected. But as soon cognitive skill was required, the higher bonus led to poor performance. The answer lies in a bias referred to as Ego Depletion. I’ll delve deeper into it at a future time.
‘After weeks of reviews, debate, and discussion, Roberto and I supported the project. They had convinced us that changing the product would be a brilliant competitive move.’
Imagine a company that really understood what motivated its experts, consultants, and workforce. Imagine also a company that really understood what angered its customers.
It’s a rare person who wants to hear what he doesn’t want to hear” –Dick Cavett
If the leadership of the business you’re investing in understood how to motivate its people and also knew how not to anger its customers, that might be one of the factors for a sustainable competitive advantage.
The Dan Ariely series are inspired by: