Almost all of the companies I have worked for – either as an employee or, more recently, as a coach – usually set individual goals or targets. Individual goals describe the planned or desired contribution that, from the viewpoint of the company, a single employee should make to the company’s performance in a predetermined period of time. Often, the degree of target achievement is linked to some form of variable remuneration. This is standard practice above all in companies or divisions of companies where a high degree of education is required and the tasks normally are of a very complex nature.
Now what exactly is the purpose of this? The company hopes that these individual target agreements lead to a better performance of the individual employee. A quite understandable motivation at first glance. Because every company certainly wants to generate as much value and innovation as possible with the help of its employees. The prerequisite for this to actually work is that staff can be motivated by outside stimuli, i.e. extrinsic factors.
This is exactly where various studies conducted by psychologists, economists and universities come into play and refute this alleged causality - in fact, they have been doing so for several decades. The MIT, for example, has shown that performance declines as soon as an employee is promised to be granted a bonus for fulfilling a particular task. This applies when a minimum of cognitive abilities is necessary for the work to be done. The effect is magnified when the task is more difficult and when more conceptual thinking is required. The results could be reproduced – even on various continents which means that they are not influenced by cultural aspects. Conversely, this means that these results do not apply to purely mechanical tasks.
Money definitely is of significance for employees and their performance. But only as long as they believe they are appropriately rewarded for their work. A salary that an employee thinks is too low and therefore not fair discourages him or her. In this case the golden rule is that the salary has to be high enough so that it does not represent an obstacle or acts as a distraction taking away focus. At this point, three factors come into play that actually lead to higher performance – at least in areas where intellectual abilities are required.
Daniel H. Pink describes these factors in his book “Drive – The Surprising truth about what motivates us”. This book is not a recent one, it was published in 2009, but in my view, it has not lost any of its relevance.
The three motivating factors are:
Autonomy: We all want to be self-directed, to the largest degree possible, and what we do in a self-directed way normally is good. Autonomy permitted or facilitated in a company results in more commitment and less of pure compliance with provisions.
Mastery: We all have the urge of becoming better in something; for this reason, we have hobbies, for example, or we do our workouts without getting any money in return. If a company manages to achieve this flow, for example by corresponding challenges and by providing the required support, then employee performance is almost guaranteed.
Purpose: Deep down inside of us, we all want to make a difference. When we see this purpose in the company we work for, we have a compass at all times and do not go astray. If there are purely monetary incentives linked to an unclear objective and purpose of the organization, an ambitious employee that adheres to the rules may actually even do harm to the organization. Because this employee might be lacking a compass.
The implementation of these three factors certainly takes various shapes for each company. However, thinking along those lines has its rewards in terms of less staff turnover, the opportunity to recruit better talent, a better sense of teamwork within the company and after all higher performance. Because another negative factor of individual goals is that it impedes teamwork and, in some case, even hampers entrepreneurial thinking among staff.
I would like to hear your experience in this context. Can you name any examples where monetary incentives actually led to better performance in your view or even resulted in defective behavior of employees? I am looking forward to your responses.
This text first appeared in my newsletter 'Innovation on Wednesday'. It is published every other Wednesday. For subscription click here