A popular view that corporates hold on to very dearly, is that people are driven by incentives. Spot bonuses, performance appraisals, salary hikes, etc, are tools that organizations use to get the best out of their people. At least that’s what they would like to believe. In 1976, two economists, Michael Jensen and William Meckling wrote a paper on what they call Agency or Incentives Theory. This is one of the most cited papers of all time. The simple crux of the paper is that you have to align the interests of the people with the interests of the shareholders. They don’t go into the details of how compensation should be structured but they basically connect how employees do something and not the other, to how the company pays them. As you can imagine, this is a simplistic theory, and because its simple, it is quite attractive. The thinking of connecting external rewards to getting people to do certain things is not limited to the corporate world. Parents often bribe their kids to do better in school with tangible prizes and rewards, thinking they are aligning employees’ interests (their kids) to the shareholder interests (them). Nothing could be further from reality.
Any theory can be challenged by looking at anomalies, i.e, cases the theory cannot explain. Some of the hardest working and dedicated people in the planet, are working in non-profits. Their alignment to the cause, is not driven by their compensation. Military is another great example. It is by far, not the best paymaster and people in the armed forces are often the most driven and most satisfied with their jobs. Clearly this theory is too simple and can perhaps not explain how people tick. So what is it that makes us tick, then?
Before we get into that, I’d like to talk about a fascinating discussion that was moderated by Clayton Christensen in his Harvard class. He writes about this in his book How Will You Measure Your Life (other authors being James Allworth and Karen Dillon). While discussing a case study, one of the students suggested that a senior engineer be assigned to a critical customer issue, in addition to his other responsibilities. Christensen digs into this idea by asking how will you make sure that the engineer makes it his key responsibility while being already loaded with other stuff on his plate. Someone suggests offering him a bonus and that’s where the discussion becomes rather interesting. Some other students pose the valid question of how it would make the other engineers in the company feel. Would they also have to be given a bonus when the next customer issue comes in? What about other assignments. Does this system lead the company down the rabbit hole of piecemeal project based compensation? Someone says its not company policy to offer bonuses to engineers as bonuses are only given to managers who have business goals and everyone else under them is just performing that their specific duties. Professor asks them weren’t these same managers engineers once, who did not need to be motivated by bonuses. What happened when they became executives? This is a super cool discussion and I’d urge you to read/listen to this book, the first chance you get.
Back to the original question of what makes us tick. There is another school of thought that perhaps explains motivation better. It’s called the two-factor theory or the motivation theory. It suggests that people can be made to do things for money but they cannot be motivated by it. True motivation is getting people to do it because they want to do it. Frederick Herzberg wrote a groundbreaking article in HBR on how people get motivated. He explained that for a person, the spectrum of being satisfied is not a single scale. It doesn’t start with highly satisfied on one end and absolutely dissatisfied at the other. Satisfaction and dissatisfaction are two separate scales. One can be dissatisfied and yet be in love with their job.
This theory separates two factors that affect a person. These are hygiene factors and motivation factors. Hygiene factors like company policies, status, compensation, good bosses, management culture, and benefits are related to dissatisfaction. If you don’t compensate people fairly, they will be dissatisfied. Bad hygiene causes dissatisfaction. That much is obvious. Understanding that the absence of dissatisfaction is not satisfaction, is the critical point here.
If you do the hygiene factors well, people will not hate their jobs but it doesn’t mean people will love their jobs. That’s where motivation factors like challenging work, meaning, and purpose come in. These are the real factors that motivate people. We’ve all experienced true motivators in our life. Doing assignments that challenged us and helped us grow professionally, where we enjoyed the actual process of doing something. It resembles a child playing with a toy when there is no need for external motivations. The child just enjoys playing with it.
Understanding this difference between hygiene factors and motivation factors is key to, not only creating a great workplace but also making good career choices. It makes sense to use the Herzberg lens to look at your career decisions. Most of us make decisions simply by looking at hygiene factors and not the true motivators. That needs to change as well. Hygiene factors like salaries will not make you feel excited about getting to work every day. You need to look at your internal motivations and find workplaces that fulfill those desires while ensuring they also meet the hygiene factors. We do not understand how easy it is to literally go to play, and not work, every morning.
I run a startup called Harmonize. We are hiring and if you’re looking for an exciting startup journey, please write to jobs@harmonizehq.com. Apart from this blog, I tweet about startup life and practical wisdom in books.