Driven to succeed: rethinking how to motivate workers
- Many companies offer staff short-term incentives to encourage better performance
- But this can cause employees to become demotivated, especially if carrying out creative tasks
- Netflix and Amazon are among companies taking a different approach
Illustration by the Balbusso Twins
Please remember that the value of an investment can fall and you may not get back the amount invested. This article originally featured in Baillie Gifford’s Autumn 2022 issue of Trust magazine.
Want to motivate your employees? A popular technique is to offer rewards.
Intuition suggests giving workers iTunes vouchers when they complete a critical project on time or a case of wine when they host a successful event, or paying sales representatives a commission based on individual performance.
But intuition is at odds with a growing body of research that suggests short-term incentives actually hurt performance.
And it is true not just for humans. Psychologists found that when they gave rhesus monkeys a mechanical puzzle, the animals performed worse over time if rewarded with raisins for solving it.
The American writer Daniel Pink set about solving this mystery in his book Drive: The Surprising Truth About What Motivates Us (2009). I have found it useful in developing our thinking on sustainability and our wider responsibilities as investors.
Pink acknowledges that rewards can boost results for routine repetitive tasks, such as stacking supermarket shelves. But the effect doesn’t last long and ultimately destroys people’s instinctive desire to motivate themselves. They become driven by the reward, he says, not the task.
With non-routine tasks it’s even worse. Introducing monetary rewards often results in less creativity and poorer performance, even in the short term.
Pink identified three sources of motivation:
- Biological drive - Answering your physiological needs, such as to breathe, eat and drink.
- Extrinsic motivation - External forces that reward and punish your good and bad behaviours.
- Intrinsic motivation - The impulse from within to carry out a task, such as the satisfaction of a job well done or the joy of creativity.
Most companies try to motivate staff through extrinsic rewards – the carrot-and-stick method.
But today most work involves cognitively challenging problems and dealing with hard-to-predict situations arising from our interactions with each other. For example, consider the challenge of being a doctor in a hospital’s accident and emergency department on a busy Friday night.
These tasks require creative answers. Extrinsic motivators are actively damaging in these circumstances.
The American psychologist Abraham Maslow played a key role in challenging the idea that our behaviour is solely driven by the pursuit and avoidance of external stimuli.
In 1943, he famously proposed five layers of needs that must be dealt with in order. Our base needs are for physical safety, health and nourishment. But then intrinsic motivations come into play. First love, then self-esteem and finally self-actualisation, which Maslow described as “the need to become everything that one is capable of becoming”.
Pink suggests that intrinsic motivation offers the most productive and sustainable way to inspire individuals. Money does matter – people want to be treated fairly – but, as Maslow argued, once a minimum threshold of fairness is hit, other factors come into play.
So how can we foster intrinsic motivation and bring out the best in people? Pink proposes three building blocks: autonomy, mastery and purpose.
Autonomy: giving people choice
Most management systems focus on control but stamp out creativity and destroy motivation. People are more motivated and perform better when given some freedom to choose when and how they work and with whom.
That doesn’t mean allowing complete freedom. But companies should focus more on results and less on how their staff achieve them.
Pink cites an astonishing study that found startups offering staff autonomy grew at four times the speed of more control-orientated counterparts.
Mastery: the desire to get better at something that matters
In a typical control-orientated business, staff carry out tasks because they are told to, not because they want to. These are poor conditions for developing mastery.
Pursuing mastery requires genuine engagement with the task and conditions, which helps to achieve a ‘state of flow’.
It is also an ‘infinite game’. Unlike goals, which are either ‘done’ or ‘not done’, there is no end to the pursuit of mastery. For example, it’s always possible to build a better car or write a better advert.
So it’s a replenishing resource – and a constant source of motivation.
Purpose: providing the context for autonomy and mastery
Autonomy and mastery are ineffective without purpose because they are directionless. Purpose helps to orientate an organisation and encourage autonomous individuals to work together.
Pink defines purpose as the desire to do something larger than ourselves. Something useful.
Purpose is a more powerful motivator than profit. Indeed, purpose-driven goals result in higher levels of satisfaction and wellbeing, and lower levels of anxiety, than profit-driven goals.
Pink’s conclusions should interest company leaders and human resources officers. But they also have implications for asset managers such as Baillie Gifford when we analyse and interact with companies.
Purpose helps to orientate an organisation and encourage autonomous individuals to work together
Many corporations tailor operations around short-term profit, seeing that as their fiduciary duty. But, just like monetary rewards for individuals, profit is an extrinsic motivator. It can narrow focus, shorten time horizons, encourage shortcuts and dampen creativity.
Companies that focus on purpose over profit can unlock the more powerful intrinsic motivational force and the creativity that comes along with it.
That doesn’t necessarily mean lower profits. Quite the opposite. The economist Sir John Kay made this argument in his 2010 book Obliquity: Why Our Goals Are Best Achieved Indirectly. As he sees it, companies that produce products that solve customers’ pressing needs will prosper anyway.
What about incentives? Firms that advise shareholders how to vote and remuneration consultants would have us believe that it is best practice to attach performance metrics to pay. And most companies still do this.
But there are a few rebels. Netflix is one.
In his book No Rules Rules: Netflix and the Culture of Reinvention (2020), co-founder Reed Hastings wrote: “High performers naturally want to succeed and will devote all resources toward doing so whether they have a bonus hanging in front of their nose or not.”
He then referenced a study which suggests that incentive pay schemes can cause creative work to decline.
Amazon’s Jeff Bezos agrees. He told Fortune magazine: “[We] have no incentive compensation of any kind. And the reason we don’t is because it’s detrimental to teamwork.”
Another key area where Pink should cause us to reflect is ESG – the environmental, social and governance criteria used to analyse a company’s operations and its impact on the wider world.
The growing ESG industry encourages companies to meet standardised targets to win favour. The highest-scoring companies are typically those with the greatest levels of disclosure and compliance.
But this approach screams extrinsic motivation. Simply put, we are not going to motivate companies to solve some of the most pressing societal challenges by setting one-size-fits-all targets. Such box-ticking might even destroy their workers’ motivation and creativity.
Instead, we should encourage companies to think about ESG through the lens of their distinctive ecosystems and cultures. That will spur the development of more interesting, creative and relevant innovations aligned with their core purpose.
The ecommerce platform Shopify provides a good example. Three years ago it created a fund to invest at least $5m a year in carbon capture and other tech-enabled emission-neutralising initiatives. It enables the founders of these initiatives to develop solutions that will make a real difference. And it sends a signal to others to use their products.
The approach is unconventional and authentic to Shopify’s culture. And that helps drive those involved.
We invest in some of the most disruptive and exciting businesses in the world. We must help – not hinder – their pursuit of mastery.
At the time of publication, in addition to the Baillie Gifford US Growth Trust, the following trusts were invested in the companies mentioned above:
Amazon - Monks, Scottish Mortgage
Netflix - Monks, Scottish Mortgage, SAINTS
Shopify - Monks, Keystone Positive Change, Scottish Mortgage
The Trust’s exposure to a single market and currency could increase risk. Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates.
The views expressed in this article should not be considered as advice or a recommendation to buy, sell or hold a particular investment. The article contains information and opinion on investments that does not constitute independent investment research, and is therefore not subject to the protections afforded to independent research.
Some of the views expressed are not necessarily those of Baillie Gifford. Investment markets and conditions can change rapidly, therefore the views expressed should not be taken as statements of fact nor should reliance be placed on them when making investment decisions.
Baillie Gifford & Co Limited is wholly owned by Baillie Gifford & Co. Both companies are authorised and regulated by the Financial Conduct Authority and are based at: Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.
The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority.
A Key Information Document is available by visiting bailliegifford.com