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Motivation and money

bags of moneyJuly is a month when many organizations provide employees with salary increases. This coincides with the start of a new fiscal year for a large percentage of companies as well a time when new college graduates are entering the labor market. Business owners are forced to consider the pay levels of their current employees as they bring on new staff.

With the job market tightening for in-demand jobs and new college graduates commanding significantly higher salaries than last year, business owners will be confronted with increasing threats of employees resigning for higher paying opportunities.

Many of my client CEOs are already often “held hostage” by employees receiving offers for higher compensation. If you combine these trends with the fact that many companies have had very small salary-increase budgets to reward top performers for the past few years, now is an important time to look at the reality of money and motivation in the workplace.

Business owners often have a mistaken view that money is the best tool in their toolkits to motivate employees. Employee opinion surveys consistently show that, while important, money is not the primary reason employees leave their jobs, are satisfied with the one they’ve got or strive for high performance. Pay inequity is more of a de-motivator than pay equity is a motivator. In other words, make sure your pay programs are competitive with the market and reward your high performers, but don’t expect compensation practices to ignite a firestorm of productivity and creativity.

A McKinsey and Company study looked at financial and non-financial motivators in the workplace. It showed that the most effective incentive was “praise and commendation from immediate manager,” followed by “attention from leaders.” In third place were “opportunities to lead projects or task forces.” The most effective financial incentive was “performance-based cash bonuses” and that came in fourth. Yet cash bonuses and increases in base pay are used more often than the first three actions, which cost nothing.

We clearly have a disconnect between what business owners think is a motivator and what really works for employees. And this is happening at a time when employee motivation and engagement are at a low point. Simply put, people want the chance to do work that interests them and they want to be recognized for their efforts by their immediate supervisor. Especially in high-demand IT jobs, young people want opportunities to work on “cool stuff.” And that’s where a no-cost opportunity to differentiate your business as an employer comes in.

So make sure your pay practices are competitive but not excessive and save yourself some money while increasing the performance of your business by focusing on the management behaviors that really make a difference.