– By David Smith
The world of business is obsessed with remuneration, in all its many forms. We spend huge amounts of time and money devising stock schemes, bonus schemes and incentives of various kinds, not to mention relating our base pay to the market and the going rate for jobs. Larger businesses wouldn’t dream of operating without a Remuneration Committee chaired by a Non Exec Director.
It’s right that we put effort into ensuring we get the best ‘bang for buck’, since wage and salary costs are a huge proportion of business costs. But research at M.I.T. in Boston confirms that incentives only really work effectively with limited roles, but not for complex teamwork roles (i.e. most of modern work). If you haven’t read any of this research, take a look at this RCAnimate cartoon which illustrates that piece of work about what really motivates us at work.
Experimenting with Recognition
During the early years of my time in Asda Supermarkets plc, the business was in a sorry state (not far from bankruptcy), and we had very little money with which to pay our people. I remember looking at the annual pay round, where adding 2p to the hourly rate would add £2m to our bottom line. Needless to say 2p was derisory, but we hadn’t much room for putting more cost onto the bottom line at that early stage of turning around the business. The only recourse was to experiment with all sorts of ways of recognising performance. In other words, finding ways to say ‘thank you’ to employees for what they were doing to outperform.
The results of doing that were remarkable. People really do respond to being recognised by their leaders. It is a huge mistake to believe that everything boils down to monetary reward. Yes you do need to pay people, but their motivation responds more to other factors. The role of the boss is significant in the lives of the employees, and we need to realise that noticing and recognising performance by an award, a letter, a card, a bottle of wine, or whatever, is extraordinarily significant.
It is strange that we notice and think about under-performance issues in business in great detail, but we are only aware of successes in general. We also tend to believe that people get paid to perform, so we don’t need to say very much. What a mistake! If only we could learn to notice successes in as much detail as problems, and were able to recognise the individuals for those successes, we would revolutionise the performance of our people.
Frederick Irving Herzberg wrote about motivation in the 1950s, so this is nothing new! And I remember learning at college as a young manager that money is a ‘dissatisfier’. Herzberg defined money as a ‘hygiene factor’ – that is, you could only at best hope to reduce demotivation by working purely on the monetary side. I wonder if many Remuneration Committee executives realise that is their role in life? In my time at Asda, that understanding helped us turn around the business, both in terms of culture and in terms of actual performance. We went from an almost-bankrupt business to a world class performer.
Eventually, we had the profitability to pay better basic wages, to give the whole workforce share options and ultimately to offer a percentage bonus profit share to all employees. However, in taking the engagement scores from the 40th percentile to the 90th percentile during that turnaround, the worst performing question in the employee survey was the one which asked “do you think you are well rewarded for the job function you perform”. The answer never rose above the 50th percentile. When asked if they are happy with their pay, people tend to say “no”.
Yet we continue to spend such a lot of time designing new pay schemes, whilst ignoring the fact that motivation is actually bound up in the human concept of recognition.
So why aren’t we embracing a concept which is so powerful and totally free?
My practitioner experience tells me that leaders and executives need to work hard to get remuneration right, but that the really productive and under-utilised concept is that of recognition. How many really effective business tools which really move the scale on motivation and performance are totally free? The answer is none. If you can lead in such a way that appropriate people get thanked and feel valued for their contribution, you will see a massive turnaround in your business performance. Trust me on this, I’ve implemented it and seen it – and both theory and research back it up!
Have a go at this in your business and hold your leadership team accountable for modelling it. Every payday, ask your leaders to recognise the people who have outperformed in the last month. They will find this hard to track initially because it isn’t what they are used to doing. But you’ll also find that people appreciate the gesture and more will want to be recognised and show you that they can outperform, too. So don’t hide behind a salary structure. Try something new and you may well be surprised at the outcome!
David Smith is a regular Academy speaker who has spent his entire career in the HR sphere. As People Director and board member of Asda from 2000 to 2009, he was key member of the team which turned Asda from ailing 4th rank food retailer to the successful player it is today. He is currently on the Board of the Institute for Employment Studies and has embarked on a planned ‘new chapter’ in his life as an author, business speaker, mentor, consultant and NED.