This article was taken from the August 2011 issue of Wired magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content by subscribing online.
Over the last few years, many individuals (myself included) have been feeling anger about levels of executive compensation, particularly against those in the financial sector. Bankers seem to be paying themselves exorbitant wads of cash, both in their salaries and bonuses. In their defence, the bankers claim that such extravagant wages are essential to motivate them, and that without such motivation they would just go and find a job somewhere else.
There is an assumption that more money is more motivating and that we can improve job performance by paying people more, either in terms of a base salary or as performance-based bonuses. But is this the best way to compensate people and drive them to be the best that they can be?
A new paper by Michael Norton and his collaborators,
Prosocial Incentives Increase Employee Satisfaction and Team Performance, sheds an interesting light on the ways in which organisations should use money to motivate employees, boost morale and improve performance -- benefiting both employees and their organisations. The researchers look at a few ways in which money can be spent and how that affects outcomes such as employee wellbeing, job satisfaction and job performance. Specifically, they examine the effect of prosocial incentives, whereby people spend money on others rather than themselves, and they find that there are many benefits to spending money on others (think about the inherent joy of gift giving).
In the first experiment, the researchers gave charity vouchers worth AUS $50 (£32) or $100 to Australian bank employees and asked them to donate the money to a charity of their choice. Compared to people who did not receive the charity vouchers, those who donated $100 claimed to be happier and more satisfied with their jobs.
The second experiment took the concept of prosocial incentives a step further by directly comparing people who were asked to spend money on themselves (a personal incentive) with those who were asked to purchase a gift for a teammate (a prosocial incentive).
This experiment took place in two different settings -- with sales and sports teams -- and looked at a broader range of outcomes. It not only examined employee satisfaction, but also the benefits to the organisation in terms of employee performance and return on investment. Although neither sales nor sports teams improved when people were given money to spend on themselves, Norton and his colleagues found vast improvements for those who engaged in prosocial spending. Through purchasing a gift for a colleague they became more interested in them and were happier to help in other ways.
These results suggest that our intuitions are leading us down the wrong path when we assume that we will be happiest and most motivated when we earn money to spend on ourselves. The findings can be extended to recommendations for current business practices, particularly in cases where compensation is very high. In fact, Credit Suisse has recently implemented a scheme requiring many of its US employees to donate at least 2.5 percent of their bonuses to charity. Is this just a PR trick to try to defuse some of the anger that people feel these days about bankers? Or is this a real effort to increase and improve motivation? I don't know, but what is clear to me is that prosocial incentives, either in the form of charitable donations or team expenditures, can be an effective means of encouraging more positive behaviour for the individual, their teammates and for society.
Dan Ariely is the James B Duke professor of psychology and behavioural economics at Duke University, North Carolina, and the author of The Upside of Irrationality
(HarperCollins)
This article was originally published by WIRED UK
