Motivating People with Money

When I was 28 I wanted a substantial raise at work. I wanted two things. I wanted to be making more total dollars but more importantly I wanted my compensation more meaningfully tied to the performance of the business I was managing. I wanted to feel like if I made the business perform better that I would share in the reward.

I didn’t need more money. The driving factor for me was a sense of fairness and feeling appreciated. I made my argument to my manager, Tim, as follows: My work was generating far more dollars than my salary. As it should, a company should only want to employee me if they can get more value from me than my cost. However, I argued that in my case I was a particularly good value employee such that they could afford to pay me more. I also was of increased value because I was relocated and living away from my home city. Many other employees were unable or unwilling to do that. Finally, there were several other business managers doing the same job as me with comparable or lesser performance getting paid far more. They were all far more senior than me but were performing the same work with no greater results.

Tim told me that he agreed with me that I deserved more money and that he certainly wanted to have my compensation more closely tied with performance. However he told me that his boss, Alex, was giving him push back in modifying my compensation.  He invited me to address the matter directly with Alex. Alex told me that he was not my manager and that I should take the issue up with my manager. I was trapped in this circle jerk for months.

Then I went on vacation to South America. While away I decided to how I was going to resolve this once and for all.  On my first day back from vacation I went into my manager’s office and made the following request:

Let’s agree on a deadline. By that date you’ll do one of 3 things:

1)     You’ll give me the compensation changes I’m asking for.

2)     You’ll tell me to go fuck myself.

Telling me to go fuck myself is a fair response. No one is obligated to pay me more money and certainly not if they don’t think I’m worth it. What they are obligated to do is to resolve the matter one way or another in a timely fashion. That way I can decide what I want to do with myself professionally. Keeping me in limbo is not fair.

3)     Arrange a meeting with me, my manger, and my manager’s boss all in the same room and agree to not end the meeting before a resolution is reached one way or another.

Again, I stressed that they are not obligated to change my compensation. Doing so or not is their choice. Leaving the issue perpetually unresolved and no one taking responsibility for the decision is not acceptable. My manager agreed with my request and a deadline was set.

Quite predictably on the day of the deadline, nothing had been resolved and the three of us had a meeting. I left the meeting with most of what I had asked for. I got what amounted to nearly a 20% raise and my compensation was made to be more closely tied to my business’s performance.

Despite that I left the meeting feeling very dejected. I didn’t work the rest of the day and even began reviewing my resume. The meeting was such an unpleasant, adversarial process. Alex started off by stating how pissed off he was that we were having this meeting in the first place. I basically got the message from him, I don’t appreciate what you’re doing, I don’t like or respect you. I’m only giving you this extra money because I feel forced to and I resent you for it.

To me Alex had made the worst possible decision. When deciding whether to give an employee more money or not you have two competing objectives. On one hand you want to save having to pay out as much money as possible because, well profitability is generally a key goal. On the other hand you are trying to inspire motivation and loyalty. Alex failed at both of these objectives. If he was going to leave me with such a sour taste in my mouth anyway he might as well have saved his money. Alternatively, if he’s going to pay me the money, leave me feeling grateful for the raise he has just given me. Why not shake my hand, look me in the eye and say “thank you, I appreciate what you do, and keep up the good work.” He achieved the worst possible outcome for himself.

Shortly after this incident I was given an opportunity to reward some of my employees. Our business had had a decent year and I was given a small pool of bonus money that I could distribute at my discretion if I wanted to.

I called one of my sales guys, Joe, into my office. I told him that over and above the normal bonus that all employees were getting I had decided to give him a 3K bonus this year. I told him that I appreciated the effort he put in over the past twelve months. And I especially appreciated that to his own detriment he took time away from his regular job to train and help a new sales person. I loved how he showed a commitment to team success. I said thank you for your attitude, your effort, and your results, enjoy your bonus and keep up the good work.

My sales guy welled up a bit, hugged me, and said “thank you, I want to go and work really hard so that you’ll be motivated to give me a bonus like this next year.”

I had given my employee a fraction of the money I was given. Furthermore, his raise was only a onetime bonus instead of an annual increase. But look at the difference in terms of the motivation it inspired.

So there are a few lessons to be learned here:

11)     It’s important to work in environment where your superiors respect, value, and like you.

For me I had a great relationship with my boss but a bad relationship with his boss. In the long run if you can’t improve the relationship with people who control your income and general advancement you need move somewhere else.

22)     Appreciation and respect are more important to employees than dollars. They really are. And the same dollars are more meaningful to employees if presented in the right way.

There is a minimum amount of money each individual needs to be paid. If people aren’t meeting their most basic economic needs then they’ll look for work else ware. That being said, once those needs are met simply showing someone that there work is recognized and appreciated can often go a lot further than additional dollars. And of course, recognition and appreciation are very inexpensive they just require some thought and consideration.

33)     Giving employees non-guaranteed, inconsistent money (one time bonuses) is an effective, less expensive motivator.

Psychologists have identified a concept called the hedonic treadmill. The idea of the concept in this context is that additional money will not have an enduring impact on our happiness or satisfaction. The logic being that if you get a raise from $60,000 a year to $80,000 a year you will temporarily become happier. You’ll appreciate having been given a lift. However, you will shortly get used to earning $80,000. It will become your new benchmark for what your normal salary should be. Your boss could give you a pay increase again but you’ll eventually get accustom to that new salary as well. You are on this treadmill where you need to keep getting more and more just maintain the same level of happiness.

For this reason I don’t think traditional Christmas bonuses are effective. Employees just come to expect them and perhaps almost feel entitled to them. It doesn’t carry as much motivational impact as it could. By comparison, unanticipated, inconsistent rewards don’t allow for this same process where an employee gets accustomed to receiving them. This way, you can give your employee a reward for their efforts without raising the bar for the future.

While on the topic of bonus strategy, there are more points I would like to highlight. One, bonuses have more impact if you single out some star performers. It’s more motivating to really apply yourself if your effort good or bad has direct personal consequences. You can have group incentives too, after all, you are presumably trying to foster team work but it’s important to make sure people don’t feel their individual contributions are lost in the sea of a larger company.

Two, it’s a good idea to make a meaningful part of employee compensation tied to the overall success of the business. There are two benefits to this. One is that employees feel they are in the same boat as ownership and share in the success. This is very motivating and can better align interests. Two, it sets up a system where you pay employees more in strong years when you can afford it but save on payroll cost in lean years. Any employer knows how difficult it is to reduce someone’s salary. If part of the compensation is made variable and tied to company performance this allows for natural payroll relief when the company needs it.

Click here for my post on Motivating employees without spending more money. 
Click here for my post on Asking your boss for money.