The Tribune - Spectrum

Sunday, March 23, 2003
Lead Article

Simple remains the best

Time spent on motivating staff with incentives would be better used to boost job satisfaction, writes Simon Caulkin.

THE first law of management is that simple is best. But as so often, there's a snag. ' Simple ' is not the same as 'easy'. Management is about making judgments. 'Making decisions is what we pay people—everyone—for,' says management sage Elliott Jaques, and judgments are often hard, no matter what 'solutions providers' promise. They're contingent, dependent on people, and can't be reduced to formulas.

But the point is that everything else, the rules, regulations, HR and reward systems, is secondary support for this first-order judgment-making. And the more complicated and bulky the supporting apparatus, the surer the sign that something's wrong. Take, for instance, the linked issues of incentives and motivation. Companies spend inordinate amounts of time and effort drawing up incentive schemes to encourage employees to work harder. The assumptions are that people are motivated by money and should be paid according to performance.

Both of these seem unexceptionable. When Chinese peasants were allowed to keep a proportion of what they produced and sell it at market prices, output shot up. Jockeys on commission win more races than those on retainers. Pay for performance intuitively seems fair. Yet in practice it all becomes so complicated that it interferes with the real work. Broadly speaking, incentives are expected to do three things: attract, motivate and retain. As academic investigators have pointed out, that's quite a tall order, and traditional schemes do a pretty poor job of all of them.

One reason is that most people's jobs are more complex and have more dimensions than growing vegetables or riding races. Some are intangible and hard to measure. In such 'multi-tasking' jobs, points out Chicago economics professor Canice Prendergast, incentive contracts may be dangerous because they encourage people 'to focus too much on certain aspects of the contract to the detriment of all the other things that they should be doing'. As the past few years have revealed, this is disastrously true of chief executives.


Another reason is that in most jobs, results depend on the efforts of many people, not just the individual. So how do you measure performance? With difficulty. Compensation consultants are brought in complicated formulas and weightings are devised to finesse the imbalances HR staff run briefings to explain them and still they're incomprehensible and people think they're unfair.

Many incentive schemes are not only damaging of effort and a bureaucratic deadweight: they are unbelievably costly. For example, the stock-option bonanza of the past decade wasn't a reward for extra effort, still less for lasting achievement. It was a giveaway caused by the irrational exuberance of investors.

Ironically, it was shareholders, not employees, who made the effort and suffered the consequences—US CEOs plundered their companies of more than US dollars 3bn, according to one calculation. All the vast investment in alignment and incentivisation created precisely nothing. As Charles Handy put it: "The incentives ... ended up consuming all the extra wealth they were supposed to generate."

Incentives do work—they incentivise people to demand more incentives (as in the case of Jean-Pierre Garnier, who wants his pay increased from US dollars ten million to US dollars 18 million to motivate him to remain chairman of GSK). This insight comes from the January issue of Harvard Business Review , which is dedicated to motivation, and in particular from a famous 1968 article by Frederick Herzberg, reprinted in the magazine.

Herzberg posited that, counterintuitively, job satisfaction (and motivation) isn't the opposite of job dissatisfaction, but stems from entirely different human needs. Satisfaction is the result of factors intrinsic to the job—achievement, recognition, responsibility, the job itself—while dissatisfaction is due to external elements such as company policies, work conditions—and pay. The corollary of that is that while pay can certainly demotivate (perhaps that's what Garnier is saying, in which case shareholders should draw their conclusions) it can't motivate, because motivation is internal. A motivated person is self-powered by a generator, an unmotivated one by a battery that needs constant recharging, in Herzberg's metaphor.

So how do you get people to do the work? One way is by kicking them. Unfortunately, negative incentives are no more reliable than positive ones. Besides, kicked people can kick back.

A better bet is giving people a good job to do. This isn't always easy since it involves solving problems and making judgments, and, for managers, accepting that those activities are part of everyone's job, as in Jaques's dictum. Yet it has been and must be done: not just for managers but also for assembly-line workers, craftsmen doing housing repairs, call-centre agents and policemen, to name a few.

'The desire of most people to do a good job is the most powerful asset a complex modern economy has,' John Kay wrote recently. The benefits of capitalising on this desire are a huge but hidden redirection of management resources from unproductive to productive ends.

For example: because the main function of pay is not to motivate but to avoid demotivating, the most important requirement is for it to be fair. That means simple . So you need less complicated employment contracts, appraisals and reward schemes (there are pay implications because changes generally involve upskilling, but they usually make the contribution clearer - and isn't upskilling what the economy wants?).

You need fewer (although better) measures. You need fewer HR manuals and memos. Sometimes whole computers can be turned off and thrown away. Because values are internalised they don't need to be incorporated into detailed rules and regulations, so you need fewer bureaucrats to administer them. Finally, all those negatives release an unquantifiable positive: instead of managing by watching the scoreboard, managers can concentrate on pursuing the ball —the customer. Good work is its own reward. In management less is more, least is best. Simple, really. — Guardian