Foreword

A Better View of Motivation

by Dan Ariely

There is no question that for almost all companies the largest expense, across the board, is employee compensation. Most companies spend the majority of their income to motivate people through salaries and bonuses. But do companies spend this large amount of money in an ideal way or would they be better off spending some of it in other ways?

Some time ago, I sat down for a long discussion with an executive from a very (very) large publicly traded bank. Like many financial firms, his bank gave some people incredible bonuses at the end of their fiscal year, sometimes to the tune of millions of dollars. The executive explained to me the complex and detailed system of equations the bank used to allocate these huge payouts, which had to do with factors like individual contribution, group contribution, the overall function of the bank, and the overall function of the individual in the group. He asked me for my opinion about each one of the parameters, and each of the equations, and we talked about these in detail for two hours.

At the end of the two hours, I asked him to paint for me a picture of how these big bonuses are delivered to people. “Do you give them a check in an envelope?” I asked. “Does the money go directly in their account? Is there some kind of a ceremony? A discussion? Does the boss ask them how they are going to spend the money? Does the boss invite the employee out to celebrate with a glass of wine or beer? Do they shake hands? Is there a hug?”

“Of course not,” my interlocutor replied stiffly. “We’re XYZ Bank.”¹

“So you’re giving people all of this money to motivate them, but you are not taking any non-monetary actions to increase their motivation?” I asked. “What do you think would happen if a boss took out the employee for a celebratory beer? What if the boss gave them some advice about how to spend the money more wisely? How much more motivated would the employee be then?”

“Interesting,” he said.

“Maybe we could even quantify the motivational power of a beer,” I continued. “For example, what would create stronger long-term motivation and loyalty, a million dollars in an envelope and a handshake, or $950,000 with celebratory beer? What about a million dollars vs. $900,000 with celebratory beer and a hug? The point is, that while your bank is very happy to make up compensation equations and give tremendous amounts of money away, you’re not truly exploring the fundamentals of human motivation, you are not investing in human capital, and you are not learning how to get people to care more about what they are doing.”

By way of illustration, I described to him an experiment that my colleagues and I had once run at an Intel chip factory. In that experiment, we examined one type of bonus that came in the form of money, another that came in the form of a pizza voucher, and a third that was a compliment from the boss. The results showed that the compliment was the most motivating form of reward. Moreover, while the financial bonus had a short-term positive effect on performance, it had a long-term negative effect on performance, and together the overall long-term effect of the financial bonus was negative. “The main point,” I told him, “is that there is a lot more to work than just the opportunity to exchange labor for money.”

Like this bank, too many companies fail to understand the complex, intricate topic of motivation and how to optimize it. That’s because they perceive themselves as makers of goods like cell phones or pharmaceuticals, or deliverers of services like TV or banking. They don’t pay sufficient attention to the parts of the business that don’t make it to the balance sheet, or the kinds of things that are not reported to Wall Street. They don’t fully realize that companies, and their futures, are largely a sum of their human capital.

Caring for employees, making them feel respected and valued, treating them fairly, giving them opportunities for growth, and taking them out for a celebratory beer once in a while don’t have a monetary line item on the P&L sheet, but they can be worth a lot, particularly in the long run. As Great Place to Work’s invaluable surveys of millions of employees show very clearly, when employees feel pride in their work, trust in their leaders, and camaraderie with their coworkers, they repay the company with commitment and engagement that also show up on the bottom line. What’s more, when companies build a consistently great culture—what Great Place to Work calls a For All culture, the boost is increased even more.

“A Great Place to Work,” writes Michael Bush, “is one where employees trust the people they work with, have pride in the work they do, and enjoy the people they work with.” This is not just touchy-feely stuff: the excellent data that Great Place to Work has accrued over time (and that I’ve used in my own studies on workplace motivation) bears it out. Some of their findings have been surprising. For example, it turns out that people worry less about monetary inequality than they do about the fairness of processes and being treated equally across categories such as gender and race. So it’s OK for someone to get a larger bonus than someone else as long as the methodology used to sort out who gets what is understood to be fair and equitable.

There is no question that the engine of growth for any company is the ingenuity of their employees, while the engine of stagnation is employee apathy. This book shines a light on the importance of investments in human capital that go beyond salaries and benefits. In today’s workplace, in which work and life are tightly integrated, companies need people to be thinking about work commitments practically around the clock. The only way employees will do that willingly is when they believe that their leaders care for them, that they are treated fairly, and that they’re engaged in meaningful work. By investing more in human capital, companies can do much better for all their stakeholders—for shareholders, for the people who work there, and for the world.

Dan Ariely is the James B. Duke Professor of Psychology and Behavioral Economics at Duke University and the author of several books, including Predictably Irrational, The Upside of Irrationality, The Honest Truth about Dishonesty, and Dollars and Sense.