The folks at McKinsey issued a timely article that brings fresh data to the quixotic search for the right formula to attract and motivate talent. [FYI - You may need to register to view the article.] Based on their own research, the authors suggest non-financial incentives are more effective at motivating employees than traditional financial incentives like salary hikes and bonuses. These findings concur with other surveys that confirm that for employees with satisfactory salaries, financial incentives offer mostly fleeting motivational benefits. But although most companies are cutting back on financial incentives due to the ongoing financial crisis, it doesn’t appear many of them are shifting to other (more effective) reward and recognition programs. For many the adjustment of incentives remains an exercise in management of costs.
According to the article, the most effective non-financial motivators are:
- Praise from direct managers
- Leadership attention (one-on-one meetings)
- Opportunity to lead projects
Anyone with management experience is likely familiar with these incentives – and understands intuitively why they would work. As the authors write: “The survey’s top three nonfinancial 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 if all this seems logical and backed by research, why do so few companies emphasize non-financial incentives? The McKinsey authors suggest the biggest reason is old habits are hard to break – traditional wisdom is that money talks louder than anything else. Another reason – which I’ve witnessed in my own corporate experience – is that non-financial incentives often entail more time and commitment from managers, and many companies are hesitant to juggle or stretch the agenda of their managers. Another theme woven through the article is that some companies equate basic communication (such as town hall meetings) as automatic motivators, while in reality the outcome is highly dependent on the specific information, format and occasion.
Perhaps this is another example of how some companies under strain tend to resist dramatic change or new ideas, rather than embrace the opportunity for innovation…or the inability of many leaders to seriously consider the preferences of their employees. Certainly, there is no shortage of publicity and plaudits for progressive employers who leverage a wide range of benefits to engage their employees – think Fortune’s Best Companies to Work For. But clearly, this has not been enough to alter the core incentive programs of many employers.
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November 9, 2009 at 4:29 pm
Bernie Ritchie
Bernie, I think the answer probably lies in your concluding paragraph. Companies under strain should seriously consider innovating out of a crisis in their activities and employee engagement approach. This requires significant verve, strategic savvy and corporate agility as well as the ability to understand the positive impacts innovation, for example innovative employee engagement programmes, can have on a company’s future standing. Many companies, like you say, simply retreat when under strain and have no will to exert any energy around new ideas, or spend too much time on alternative ways of employee engagement such as the ones yo mention. If these companies are truly entrenched, they may well see these new ways of employee engagement as too time-consuming and newfangled when, in their view, they should be getting on with the ’same old’ ways to move out of their current crisis. Hopefully, 2010 will ease things up a little and innovative employee engagement can kick off!
November 10, 2009 at 3:29 pm
Linda Kingman
Bernie,
I think your article is spot on. The McKinsey report confirms what we’ve known anecdotally for years. It’s the little things that matter – consistently thanking employees who do a good job, giving people challenging assignments, celebrating successes. It’s about building a culture of appreciation. The good news is that we’re seeing an uptick in the number of clients who are hiring us to train their managers as communicators – which includes tips for employee appreciation and recognition. The McKinsey report confirms the wisdom of such an investment.
November 11, 2009 at 7:27 am
Zee
I think for the low waged workers, money would be an important motivational factor. I mean a pat in the back to these guys would probably not turn them into hardworking ones. They need more money to give more effort. For those that receive their paychecks even before their previous one runs out, would then need these other factors to motivate them. And with their wage and qualifications, they know they can move on easily.