I recently took part in a conversation about compensation of employees. Some readers offered criticism on the Merit Money practice, described in my new Workout book, claiming that Merit Money is just another way to incentivize people. The feedback I received was, “Money doesn’t motivate people”, followed by, “Don’t incentivize people” and “Just pay people well”.
Let me explain why I think this advice is useless.
“Money doesn’t motivate people”
I live in Brussels. I can hear from my own friends that politicians and civil servants from all over Europe are attracted to the high wages earned at the European Commission and Parliament. Also, everyone knows that the credit crisis of 2008 was caused (in part) by top managers and bankers who were obsessed with ridiculously high bonuses. Obviously, money does motivate people, even those who already have plenty. The phrase “Money doesn’t motivate people” is usually offered by people who have read Drive by Daniel Pink, or Punished by Rewards by Alfie Kohn, and then took the insights and research of these authors and simplified them to the extreme, up to a point where the summary is no more than a meaningless platitude.
“Don’t incentivize people”
The very purpose of financial compensation is incentivization. I get paid to speak at conferences and company events. No matter how fulfilling it is for me, I usually don’t work for free. When you pay me, I’ll come. When you don’t pay me, I won’t come. It is obvious that money is an incentive for just about everyone in the whole world. Even a simple thank-you note, or a kudo card, counts as an incentive. After all, when you thank people publicly, you’re sending clear signals to everyone about which behaviors are desirable. Without incentives, I would not be able to share the fruits of hard labor with my co-workers. Clearly, the suggestion not to incentivize anyone is impractical nonsense.
“Just pay people well”
Of course, everyone wants to be paid well. The sad fact is, financial constraints make this impossible for most organizations. Even more, the suggestion flies in the face of Nassim Taleb’s book Antifragile, where he claims that companies who pay their workers above-average are also the ones who are most fragile in economically unpredictable environments. The idea of paying people well sounds great but it’s not actionable. The challenge is figuring out how much is “well” and how to stay antifragile at the same time. That’s where everyone disagrees. Particularly, when it’s about their own compensation.