Motivation part IV - Compensation

Take a look at the 3 scenarios below and think about how it would affect your motivation:

Scenario 1 — Tomorrow you're given a ludicrous raise to an annual salary of $1,000,000. Pow!

Scenario 2 — Tomorrow you’re told that we need to cut your salary by 20%. Boo!

Scenario 3 — Tomorrow you're told that your salary is doubled but later you find out that all your peers’ salaries were tripled.

Of all employee motivational?tools, compensation was always the one I struggled most with and only recently I realized why — unlike all other?tools, compensation is not a motivator, it’s a demotivator!

Say what now??

Let’s analyze the 3 scenarios:

#2 (salary cut) is for sure a buzz killer to the extent of looking for another job.

#3 (double vs triple) unless you have achieved nirvana, there is no freaking way you’re happy with that scenario either.

#1 (ludicrous raise) is trickier, but after the brief Champagne popping, you’ll likely start to feel the burden of your high pay that will likely result in an immense pressure to perform that will gradually erode your motivation.

So no matter what you do, the outcome is negative, which explains why the majority of yearly compensation talks end-up with frustrated employees (and managers).

“Yeah well.. that’s just like, your opinion man”

I thought so too, until I came across Frederick Herzberg’s widely excepted?Two-Factor theory .

Herzberg asserts, that in our job, there are motivating factors and demotivating ones (hygiene factors) and improving hygiene factors can’t increase motivation, they can only decrease demotivation.

Psychologically, the difference between the factors is that the left column can be easily measured by loss or gain while the right column can not. And since?loses loom larger than gains , the left side is mostly a losing game.

Example please!

Say that we?increase?10bis daily allowance by 10 Shekels, you’ll be like, “Oh that’s nice of you dear company, thanks”. But if, god forbid, we?decrease?10bis by 10 shekels, OMG! I wouldn’t be surprised if your CEO will find their car tires slashed at the end of the day.

Ok, so what do we do with this information?

Our compensation should be competitive in the market so it won’t demotivate employees who hear about higher salaries elsewhere but we don't need to necessarily break the bank and offer very high pay either — too high compensation doesn't increase motivation but does make it very hard for employees to leave their job even if they hate it (because they couldn’t bear the?loss?of lower pay), and that’s a condition we should try to avoid as much as possible.

We should also be very sensitive to differences in compensation for the same seniority level (Scenario #3). Personally, I don’t want to know how much my peers are earning. It will upset me if I hear I earn less and will make me feel uncomfortable if I learn that I earn more. Lose-lose?yet?again.

By the same token, be very careful with high pay raises or one time bonuses. The marginal motivation boost you’ll get from it will quickly be replaced with a can of worms you don’t want to open (such as setting a new benchmark?you?can’t?back?out?of and demotivating others).

And what’s your take on sales commission?

Very controversial so I won’t over elaborate here, but I do feel that we often forget that the whole purpose of commission is to motivate for better performance and quite often we might get the opposite result. If you want to hear a different angle about monetary incentives check out this?60 sec video ?by Adam Grant.

Cool I think I get it, so how do I manage these hard compensation talks?

1. Remember that comp can only demotivate so try your best to meet your employees' expectations.
2. If the expectations do not align you'll need to explain why. It might be that the market benchmark is off or that performance is not as expected. But you'll need to do your best to end that conversation with the employee feeling content.
3. Keep in mind that if the employee left the conversation feeling disappointed it will affect their motivation and that's something you'll need to deal with.

But if you're doing a good job focusing on the right things to motivate your people (recognition, development, empathy, autonomy) and if your people feel that you truly care about them as human beings, these talks will be much easier to conduct.

Xo,