Why we have got our approach to paying people all wrong
Think you’ve got your salary structure sorted? Do you believe that your performance related pay and bonus system is producing better performance?
Recent insights from neuroscience suggest that most of us have been getting this wrong for decades.
It’s been accepted wisdom for some time that incentive structures be they commissions, bonuses or performance related pay schemes drive workers to go the extra mile for the business. If people are just paid for turning up, the logic goes, well, that’s what they will do. They will go through the motions and when it comes to achieving results, they won’t care enough about them to put in the graft.
Death by spreadsheet
Many businesses are operating complicated spreadsheets with individual, team, or company bonus schemes, based on hitting targets. Often, these are created by the Finance Director based on what will make a difference to the bottom line.
But the surprising truth is that far from incentivizing the performance you want, schemes like this could be having the opposite effect.
We don’t know what we’ve got ’til its gone
To understand why, we need to know some basic neuroscience. We are hard wired as a species to seek rewards and avoid threats. This makes sense – and helped keep us alive when we ran away from predators and hunted our prey. It explains the foundations of how our society is organized. Trouble is, once we have the reward, we no longer value it. Think about the many, many times someone close to you or even yourself has suffered a serious or terminal illness. I’ll bet that you’ve said or thought that you only appreciated your fortune to enjoy good health when you risked losing it.
We take for granted those things we have recently acquired, and quickly look for the next “hit”. It’s the same for our employees. Once we have rewarded them for doing something extra, they expect that to be part of “business as usual”.
On the other hand, the threat of losing something we already have (like our good health) causes us immense stress and anxiety, to an extent that outweighs any positive emotion associated with potentially gaining the same thing!
Planning pay reviews
For example, say that you are looking at the annual pay review. You can’t decide whether to increase salaries by 3% or 4%. Someone leaks that the pay rise this year is likely to be 4% and rumours fly around. However, the business can only afford 3% and that’s what the employees end up getting. Do you think they are happy with a 3% rise in their pay? Getting more pay should make people happy shouldn’t it? In fact no, in your employee’s eyes this represents a potential loss of 1% that they thought they were getting!
So think again about how you reward your employees. We recommend building intrinsic reward into your business, to create a truly high performing business. Start by creating an engaging company culture, where your staff love to work – and the rest will follow!
Read more of our best ideas on managing performance, motivating your staff and building a great business on our blog.