It's Time to Retire... the Carrot and Stick.

One of the most common management methods I encounter is the carrot and stick, whether done consciously or unconsciously. Whenever a manager decides something is important, like morale or teamwork, they bring out a carrot. Whenever a deadline is approaching, they bring out a stick. In each case, this is a bad idea. Bear with me, and I'll explain.

Tversky and Kahneman determined that aversion to losses has a more significant impact on preferences than the prospect of attaining gains. In a nutshell, people are more loss averse than benefit seeking. People measure gains and losses in relation to the status quo, which is why the carrot does not work in the long run. Sure, it may work in the short term, but it also resets the status quo. If the carrot is money, then future carrots will have to be higher amounts of money. If the carrot is praise, then future carrots will require more significant levels of praise.

Additionally, because you reset the status quo, failing to match the new status quo is a perceived loss and employees' work will decline to compensate. This truth is one of the reasons docking pay is a bad idea. Employees who have had their pay docked will dock their efforts for a net result of zero.

Yes, you can find people who will work for money. This reality is why some salespeople gravitate to commission-based jobs. Unfortunately, these people are primarily motivated by cash instead of doing a good job. An easy example of this problem is a used car lot. I challenge you to name a single, commission-based used car lot, independent or chain, to which you are loyal. I have never met anyone who can identify one. Commissions drive salespeople to screw over customers in an effort to increase their commission. Screwed over customers are unsatisfied customers, which endangers the long-term viability of the business.

To sum up, gains are not a very powerful motivator. When they work, they reset the status quo, which requires even bigger carrots going forward. Carrots are extrinsic motivators and only work with hungry rabbits. If the rabbit is not hungry, the carrot won't do anything. Starving rabbits eat the carrot and stop once full. Their stomach expands, and bigger carrots are required in the future. Carrots are one of the most expensive means of motivating people in the long run. 

When you do find rabbits who are always hungry, they never get enough carrots. They destroy your garden before moving on to another yard. Their hunger is unquenchable. Commissions can be useful, but only when earned for long-term mindsets. I have seen an employer switch compensation to a base rate plus a three-month-delayed commission. At that store, most customer interactions occur during the first three months after purchase. Earning a commission requires making a sale and spending three months ensuring the customer is happy. This simple change encouraged salespeople to think long-term. The next sale did not give them rent and grocery money; the sale made three months ago did. I refer you to another article I wrote on store performance-based pay for a similar idea.

I admit that people have extrinsic needs and to a point are extrinsically motivated. If you refer to Maslow's hierarchy of needs, you will discover all basic needs are external, like food, clothing, shelter, and safety. Beyond those, needs are intrinsic, like belonging, esteem, and self-actualization [2]. Kahneman and Deaton determined that individual happiness improved in line with salary increases (within the US) up to about $75,000 per year [3]. Beyond that, despite welcoming any and all pay increases, people did not experience increased levels of happiness. Gains are not powerful motivators and beyond $75,000 per year; the gains are negligible.

Conversely, Gagné and Deci determined that intrinsic motivation correlates directly to work performance [4]. At some level, we already know this. When you go to the doctor, do you want one who is in it for the money or one who loves helping people? When you choose whom to marry, do you want someone in it for the money or someone who loves you? I have been unable to locate anyone who can give me an example of any extrinsically motivated person outperforming an intrinsically motivated person. So why would you want to hire those people, let alone work with them?

Next week, I'll explain why sticks don't work. In the meantime, think about alternatives to carrots and sticks. Intrinsic motivation exists in people who want a fair day's pay for an honest day's work. These people love what they do. Find them and put as many of them in your life and your business as possible. Moreover, if you aren't one of them, I encourage you to become one!

What truly motivates you to work harder, do a better job, and improve?

[1] Tversky, A., & Kahneman, D. (1991). Loss aversion in riskless choice: A reference-dependent model. The Quarterly Journal of Economics, 106(4), 1039-1061.

[2] Maslow, A. H. (1943). A theory of human motivation. Psychological Review, 50(4), 370-396. https://dx.doi.org/10.1037/h0054346

[3] Kahneman, D., & Deaton, A. (2010). High income improves evaluation of life but not emotional well-being. Proceedings of the National Academy of Sciences of the United States of America, 107(38), 16489-16493. Retrieved from https://www.jstor.org/stable/20779694

[4] Gagné, M., & Deci, E. L. (2005). Self‐determination theory and work motivation. Journal of Organizational Behavior, 26(4), 331-362.