It’s not about the money

I recently had a group of executives argue that if you wanted to get the best out of people they needed to be paid well.  Remuneration is only part of the motivation puzzle – in fact a smaller part than many people think.

Numerous studies have concluded that for people with satisfactory salaries, some non- financial motivators are in fact more effective than extra cash in building long-term employee engagement.  This is true in most sectors, job functions, and business contexts.

We know that many financial rewards generate short-term boosts of energy, which can have damaging unintended consequences.  Indeed, the economic crisis, has provided a great opportunity to reassess the combination of financial and non-financial incentives that will serve companies best.

A recent McKinsey Quarterly(1) survey underscores the opportunity. The respondents viewed three noncash motivators—praise from immediate managers, leadership attention (for example, one-on-one conversations), and a chance to lead projects or task forces—as no less or even more effective motivators than the three highest-rated financial incentives: cash bonuses, increased base pay, and stock or stock options. The survey’s top three non-financial motivators play critical roles in making employees feel that their companies value them, take their well-being seriously, and strive to create opportunities for career growth. These themes recur constantly in most studies on ways to motivate and engage employees.

So what are some of the key strategies organisations can use to motivate employees? Leadership attention was emphasised as a way to signal the importance of retaining top talent.  For example, when formulating strategy, one company convened several focus groups of talented managers to generate ideas about how to create more value for the business.  One-on-one meetings between staff and leaders are hugely motivational – they make people feel valued during these difficult times.  Large-scale communications events, such as the town hall meetings common during the economic crisis, as one of the least effective non-financial motivators.

Over and above the results of this survey, there have been numerous studies to support the power of non-financial motivators, including a values-based culture where people are respected; listened to; there is regular feedback and dialogue with superiors; the quality of working relationships with peers, superiors, and subordinates; and perceptions of the ethos and values of the organization.

As the drive for higher performance continues unabated, how are your non-financial incentives working for your company?

1. McKinsey Quarterly conducted the survey in June 2009 and received responses from 1,047 executives, managers, and employees around the world. More than a quarter of the respondents were corporate directors or CEOs or other C-level executives. The sample represents all regions and most sectors.

It’s not about the money