It has long been known that extrinsic motivators, carrots and sticks, tend to destroy intrinsic motivation, our internal drive. Researcher Edward L. Deci notes that “paychecks and pink slips might be powerful reasons to get out of bed each day, but they turn out to be surprisingly ineffective—and even counterproductive—in getting people to perform at their best.”21 All the research in this area suggests that paychecks do not lead to passion. And yet organizations persist in offering bonuses and other rewards as the main means of getting more and better work out of people.
No one would question that good pay and benefits are important things, but the idea that they function as the ultimate incentives is based on a Theory X view of the world. That’s a view in which we believe that people will not work unless they are somehow lured or coerced. The irony is that in placing all the emphasis on money, you take away the sense of autonomy from those doing the work. The work now becomes solely about doing what someone else wants, and that reduces intrinsic motivation. When the three pillars—autonomy, mastery, and purpose—are in place, there is no need for this outdated approach.
The other thing to note about incentives is that organizations should think carefully about what they incentivize. The biggest challenge I encounter in this area is individual incentives given with the expectation that people will, in return, put the team first. One of the hallmarks of great teams is a sense of mutual accountability. If organizations wish to see teamwork, cooperation, collaboration, broader learning, and a team-first mentality, they should think about how to incentivize those things rather than focusing narrowly on developing one specialized skill and how each person performs work individually.
Policies such as stack ranking, which sees managers rank employees on a curve based on their performance, can prove particularly pernicious. With the top 10-15 percent rewarded and the bottom 10-15 percent placed on performance review, and sometimes even fired, the result tends to be competition and knowledge hoarding. When Microsoft abolished its stack-ranking approach, it saw a huge uplift in collaboration, cooperation, and teamwork, which many believe has contributed to the company’s resurgence and renewed innovative spirit. Rewarding people for putting their interests ahead of the interests of the team almost always leads to dysfunctional competition and a dearth of cooperation. We saw a similar response in my company when we brought in team-based commission for our sales team. It suddenly made far more sense for team members to collaborate than to compete. As in the case of the famous paradox of the prisoner’s dilemma, the best outcomes are a result of working together.
The final thing to say about pay and incentives is that it is wise to make the process as transparent as possible. Everyone has a different idea of what “fair” means, but as long as people know why things happen, that tends to mitigate any sense of unfairness. Certainty and fairness are key social domains that can drive a threat response, and organizations must get in front of that. Transparent pay formulas leave no room for allegations of nepotism or unfairness.