Money Alone Cannot Buy Job Satisfaction

December 27, 2009: The National

by Martin Dewhurst, Matthew Guthridge and Elizabeth Mohr

Though companies around the world are cutting back on financial incentive programmes, few have used other ways of inspiring talent. We think they should.

Numerous studies have concluded that for people with satisfactory salaries, some motivators other than money are more effective than extra cash in building long-term employee engagement in most sectors, job functions and business contexts.

Many financial rewards mainly generate short-term boosts of energy, which can have unintended damaging consequences. Indeed, the economic crisis, with its imperative to reduce costs and to balance short- and long-term performance, gives business leaders a great opportunity to reassess the combination of financial and nonfinancial incentives that will serve their companies best through and beyond the downturn.

A recent McKinsey Quarterly survey underscores the opportunity. The respondents view three noncash motivators – praise from immediate managers, leadership attention (for example, one-on-one conversations) and a chance to lead projects or task forces – as no less or even more effective than the three highest rated financial incentives: cash bonuses, increased base pay and stock or stock options.

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 motivating and engaging employees.


There could not be a better time to reinforce more cost-effective approaches. The traditional role of money as the dominant motivator is under pressure from declining corporate revenues, sagging stock markets and increasing scrutiny by regulators, activist shareholders and the general public. Our interviews with human resources (HR) directors suggest that many companies have cut remuneration costs by 15 per cent or more.

Further, employee motivation is sagging throughout the world: morale has fallen at almost half of all companies, another McKinsey survey says, at a time when businesses need engaged leaders and employees willing to go above and beyond expectations.

Organisations face the challenge of retaining talented people amid morale-sapping layoffs that tend to increase voluntary turnover in the medium term. Often, top performers are the first to go. Strong talent management is critical to recruit new ones in, for example, the financial sector, who have been laid off by their employers or feel disenchanted with them.

Yet while 70 per cent of organisation have adjusted their reward-and-motivation programmes or plan to do so during the past 12 months, relatively few have gone beyond direct management of costs. Almost two thirds of the executives we surveyed cited cost reductions as one of the top three reasons for the changes, while 27 per cent made changes to increase employee motivation and only 9 per cent had the goal of attracting new talent.

The regional differences were striking: 45 per cent of the respondents in developing markets, where economies have proved more robust, cited employee motivation as a key reason for modifying incentives, compared with only 19 per cent in the US and Western Europe, where the crisis hit hardest.

Even though overall reliance on financial incentives fell over the past 12 months, a number of companies curtailed their use of nonfinancial motivators as well. Thirteen per cent of the survey respondents reported that managers praised their subordinates less often, while 20 per cent said that opportunities to lead projects or task forces were scarcer and 26 per cent said leadership attention to motivate talent is less forthcoming.

Why have so few organisations made more use of cost-effective nonfinancial motivators at a time when cash is hard to find? One reason may be that many executives hesitate to challenge the traditional managerial wisdom that says money is what really counts. While executives themselves may be equally influenced by other things, they still think that bonuses are the dominant incentive.

“Managers see motivation in terms of the size of the compensation,” explained an HR director from the financial services industry. Another reason is probably that nonfinancial ways to motivate people require more time and commitment on the whole from senior managers.

One HR director we interviewed spoke of their tendency to hide in their offices. primarily reflecting uncertainty about the current situation and outlook. This lack of interaction between managers and their people creates a highly damaging void that saps employee engagement.

Some far-thinking companies, though, are working hard to understand what motivates employees and to act on their findings. One global pharmaceutical company conducted a survey that showed that in some countries employees emphasised the role of senior leadership; in others, social responsibility. The company is now increasing the weight of engagement metrics in its management scorecard so that they are seen as core performance objectives.

One biotechnology company has reframed the incentives issue by putting the focus on recognition instead of reward to inspire a more thoughtful discussion about what motivates people.

The top three nonfinancial motivators our survey respondents cited offer guidance on where management might focus. The HR directors we spoke with, for example, emphasised leadership attention as a way to signal the importance of retaining top talent. When the chief executive of a global pharma company was crafting corporate strategy this year, he convened several focus groups of talented managers to generate ideas about how to create more value for the business.

With the same aims, a leading beverage company asked every executive committee member to meet with the critical people in their own product groups.

“One-on-one meetings between staff and leaders are hugely motivational,” said a HR director from a mining and basic-materials company “They make people feel valued during these difficult times.”

By contrast, our survey’s respondents rated large-scale communications events, such as the town hall meetings common during the economic crisis, as one of the least effective nonfinancial motivators, along with unpaid or partially paid leave, training programs and flexible work arrangements.

While communication is critical, attempts to convey messages about the state of the business often have some spin, one HR director said.

A chance to lead projects is a motivator that only half of the companies in our survey use frequently, although this is a particularly powerful way of inspiring employees to make a strong contribution at a challenging time. Such opportunities also develop their leadership capabilities, with long-term benefits for the organisation.

A HR director in the basic-materials industry explained that involvement in special projects “makes people feel like they’re part of the answer and part of the company’s future”.

A leading company from the beverages industry, for example, selected 30 high-potential managers to participate in a leadership programme that created a series of projects designed and led by the participants.

“Now is the time to swim upstream and invest more in our high potentials,” said the HR director when launching the programme this year. With profitability returning to some regions and sectors, we see signs that bonuses will be making a comeback. For instance, 28 per cent of our survey respondents say that their companies plan to reintroduce financial incentives in the coming year.

While such rewards certainly play an important role, business leaders would do well to consider the lessons of the crisis and think broadly about the best ways to engage and inspire employees.

A talent strategy that emphasises the frequent use of the right nonfinancial motivators would benefit most companies in bleak times and fair. By acting now, they could exit the downturn stronger than they entered it.

Martin Dewhurst is a director in McKinsey’s London office, where Matthew Guthridge is an associate principal and Elizabeth Mohr is a consultant.

5 Ways to Grow in Any Economy: Learn to Keep Your Company Moving Even When Things are Stagnant

December 23, 2009: Entrepreneur.com

by Jennifer Brown

Even in tough economic times, small businesses need to find new ideas, develop original products, and engineer fresh market approaches. These are the pillars of good business, and each is made from a mixture of creativity and expertise. While it may seem counterintuitive, it's entirely possible to implement strategies that drive not only employee engagement, but also innovation and, ultimately, sales--all without enormous investment in systems or people.

What can your company do to remain fresh, vibrant and alive--all without breaking the bank? Here are five ways:

1. De-emphasize office space
The traditional office space, where cubicles, the hum of overhead lights, and group politics preside, is not usually the most conducive environment for harnessing the most creative ideas. Giving employees the opportunity to perform some or all of their work outside the office can break this routine and cultivate an innovative workforce.

Often simply changing the physical working location to the café or tea house on the corner can produce a stream of new and valuable ideas. And many of these "third places" provide complimentary wireless internet access, have space for convening, and sell enough coffee to keep everyone alert. Writers and musicians know about the creative effects of a cafe's stimulating and relaxing atmosphere--why not CEOs?

2. Virtualize your workforce
In addition to being ineffective at times, the office space may be an unnecessary expense. The cost of maintaining an office space is usually the single largest line item when it comes to business overhead. Many small businesses have eliminated the expense by ceasing to rent office space and setting up virtually. Transforming your business into a virtual operation creates the new opportunity to hire and retain talented people from outside of your geographic area and frees up funds to be invested elsewhere.

Keep in mind, though, that while there are many benefits to virtualizing a company, the reduction in face time also necessitates a change in management style. Much greater focus is needed on project expectations and deadlines, as well as clear and consistent communication.

3. Leverage collaboration applications
At the beginning and end of the day, your business is about people--the clients you serve and the staff that you employ. Connecting these people in the right way is essential to creating and running a great company, and collaboration applications are excellent tools with which to accomplish this goal.

Collaboration applications create new avenues of communication that effectively improve team cohesion and break down the invisible barriers within a company. Intelligent implementation can turn a stagnant, sluggish company into one composed of engaged employees, who contribute more of their "discretionary time" toward the success of the company.

One excellent collaboration application is GoogleDocs, which creates an online conference table where ideas can be put forward, discussed and implemented. Every document created within the application is saved, so it can be opened and edited wherever there is an internet connection. Novice computer users will find GoogleDocs easy to learn and intuitive to operate. Likewise, instant messaging programs such as Skype or MSN Messenger enable fast communication through chat groups formed around departments or projects.

CPS Creative, a website design company, is a great model for its implementation of collaboration software. The company, which is almost entirely virtual, requires all employees to use the same instant messaging program and be online at designated times. All of the employees assigned to a specific project join the same chat group. Also, at the beginning and end of each work day, all employees check in with their colleagues in order to let them know they have arrived and left.

4. Invest in the skills of current employees
On a regular basis, companies face a host of small but necessary tasks that must be accomplished, like creating a Flash graphic for the website, writing a marketing brochure, or drafting a press release. Yet smaller companies cannot afford a dedicated IT department, marketing staff or public affairs coordinator, despite the fact that many of these tasks, like maintaining a functioning and well-designed website, are essential to attracting new business and transitioning from a struggling start-up to a vibrant and growing company.

Hiring new employees with the necessary skills is not the only solution; invest in the skill development of your current workforce. Your staff most likely either has the requisite capabilities to accomplish these projects or can quickly acquire them. The additional skills will undoubtedly be very marketable, which satisfies your employees while providing for the needs of the company.

One resource to help accomplish this is the website Lynda.com [http://www.lynda.com/], which provides online training in professional-grade applications like Adobe Dreamweaver and Illustrator--the required tools to build quality websites and produce stunning marketing materials.

5. Build cross-functional teams
Finally, one of the greatest methods for producing innovation in a company is to solicit contributions from the entire workforce. Taking your employees, who are the most knowledgeable experts on the company, and gathering them around a conference table will help your company develop innovative solutions with little investment.

CPS Creative once encouraged a non-technical member of their staff to try his hand at Flash design, something that he had never done before. After seeing his immediate aptitude for it, the company merged the product developed by the original Flash expert with the staff member's design, creating a better product in the end.

Regardless of the condition of the economy, companies should always looking toward expansion. Growing while revenue is stagnant is a difficult, but not impossible, task. Consider these five ideas: shifting the workplace away from the office, virtualizing the workforce, using collaboration applications, investing in new skills acquisition, and tapping into the talents of existing employees. All of these strategies are inexpensive and cultivate the essential ingredients of successful small (and someday large) businesses everywhere--workforce engagement, innovation and, ultimately, sales.