Friday, February 24, 2012 - 2:52pm


Welcome to Research Friday! As part of a continuing weekly series, each Friday we invite a nonprofit scholar or practitioner to highlight a research report or study and discuss how it can inform and improve day-to-day nonprofit practice. We welcome your comments and feedback.

postedby
Stephanie La Loggia, M.A.

Manager of Knowledge Resources, Research and Academic Affairs,
ASU Lodestar Center


The research on how compensation systems affect employee motivation is both fascinating and surprising. The evidence flies in the face of some underlying, pervasive assumptions: namely, that people work primarily for money and that the best incentives to keep people motivated and productive are financial.1

It turns out that most people do their best work when they are motivated by something other than money. Things like purpose, achievement, recognition, and autonomy—to name a few. In fact, you can often muck it up—de-motivate people!—by directly tying financial incentives to their work. I can’t believe I’m about to back up this claim with a YouTube video, but here it is: Daniel Pink talking about the severe limitations of financial incentives and what really motivates people to do great work.


(Since this is Research Friday, I’ll point out that he summarizes years of research studies in support of this phenomenon.)2

You probably knew this. After all, this is the nonprofit world, where we get things done for free all the time, and often find ourselves being the ones—happily—doing the free work. But nonprofits don’t just have volunteers. They have employees, and they need them. And the problem is, although financial incentives are a weak motivator, they can be a strong de-motivator. In fact, there is a huge tendency for employees to get disgruntled and de-motivated by the compensation structure.

How? Some of it happens through the natural human process of comparison. People are more concerned with relative, rather than absolute, pay. They’ll compare their compensation to their co-workers and use that information to decide how much the organization values them.1 This will happen regardless of the compensation system, but performance-based pay raise systems, by nature, create unequal, variable pay, which compounds the problem.

Another reason employees become unhappy with their compensation (and the organization) is because employees often view the performance-based pay raise system as unfair. The more a person’s job includes the following elements, the harder it is to fairly evaluate (and reward) individual performance:1

  • Cooperation with others—when the task involves working in cooperation with others, there are always questions of relative credit. Organizations can unwittingly reward competition (grabbing the credit, avoiding the hard tasks) instead of bolstering teamwork.
  • Variables out of the employee’s control—as anyone who has been fundraising for the last four years in the nonprofit sector knows, employees can’t always control factors that affect job performance.
  • Unquantifiable goals—When the goal is something like “making a positive difference in the life of a youth,” the judgment often comes down to the supervisor’s anecdotal, incomplete information. Have you ever had a job where you felt like the judgment of your performance was based on who talked to your supervisor most recently? Someone calls to complain, and you are doing a bad job. A letter of praise, and, wow, what a great job you are doing!!

Jobs in the nonprofit sector very often contain all of these elements. They are complex, they involve creativity and soft skills, and they require teamwork. It’s hard enough to measure a whole organization’s progress towards its mission, let alone assign individual credit for that progress. It's no surprise when employees perceive job performance evaluations as unfair.1

Organizations that are aware of this information have strategies that go something like this:

“Let’s make sure our employees aren’t de-motivated by their compensation or the pay raise system by offering them competitive salaries and benefits packages, and a structured, fair, raise and promotion system.”

“Let’s make sure our employees are motivated and engaged by building a culture that emphasizes purpose, teamwork, recognition, and achievement.” (Note: although not the subject of this post, work-life programs have also been shown to improve employee engagement).

I’ll close with an idea: raises that are not based on performance. A few alternative bases can be the following: seniority, cost of living and market adjustments, training and education, additional job duties, and promotion.3 The keys to making this work are excellent training and professional development, and a clear, transparent, and structured process. (These will help avoid the Peter Principle risk.)

Another key is addressing poor job performance by easing low or unengaged performers out of the job or the organization. Because, as a nonprofit, you can’t afford to have anyone working for your organization who isn’t passionate about your mission. You literally cannot afford it, because it is the best, most motivating thing a nonprofit organization has to offer its employees: the chance to work for a purpose.


The ASU Lodestar Center is getting ready to launch our compensation and benefits survey, where we will ask nonprofits about the kind of jobs they have, the compensations for those jobs, and the benefits they offer. We’ll aggregate the responses and compile the data into a big report. We’ll be sending it out soon.



Stephanie La Loggia is the Manager of Knowledge Resources for the ASU Lodestar Center. Some of her past research projects include the Nonprofit Compensation & Benefits Report and Arizona Giving & Volunteering publications. Stephanie teaches undergraduate courses in the Nonprofit Leadership and Management program, and she has also been a youth summer camp director for over 20 years.

 


Sources:

[1] Hard Facts, Dangerous Half-Truths And Total Nonsense: Profiting From Evidence- Based Management, (Chapter 5). By Jeffrey Pfeffer and Robert I. Sutton, Harvard Business Press, 2006.

[2] Drive, The Surprising Truth About What Motivates Us. By Daniel Pink, Canongate Books, 2010.

[3] “Abandoning Pay-for-Performance Myths in Favor of Evidence.” By Brian Levine, and Colleen O’Neill, World at Work Journal, 2011.

 


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Comments

During our annual reviews, we still give out pay raises or, in a good year, bonuses, but there is something else. Employees (myself included) are allowed to decide on personal goals and as long as we (the employer) are able to help accomplish them, we do so. Ever since I saw ASU has a degree in NLM, I wanted it so I was given the flex-time and some tuition assistance to help me reach that goal. An employee wanted to take her son to Disney so I used my time share and frequent flyer miles so she could. In my experience, those rewards motivate employees more than a pay raise ever could.

I enjoyed reading your post. I have actually watched that video before and I find it interesting that people are really effected when incentives are offered. We are a society based on wanting more and pay raises are a major factor in keeping a job. I had never really thought about the non- profit sector of motivation before and after reading this I have a better understanding now. Passion is a major factor in motivation and I feel that that is the most important trait to have while working.

Great article Stephanie! The concept that resonated with me was the idea that you need to pay people enough to take money off the table as a motivator. I worry that too many organizations are unable to meet that minimum threshold. I think these alternative motivators are great and more then a couple of them have kept me going in my job, but the realization that I'm not building a solid financial future is always in the back of my mind. Until we get that base issue fixed young professionals will continue to jump ship no matter the alternative motivators we throw at them. Fortunately most of us attempt to move to other more established Nonprofits, but there are only so many of those to go around.

I liked what you had to say in your post and enjoyed the video. Many times, when I was working with Massage Elements (under Massage Envy), I felt that my position with the company wasn't comfortable for me. I had no passion and no motivation. So, I quit and went back to school at ASU. I will be graduating in the summer of 2013. Now, my passion is to get my degree and go back to my hometown and help build a healthy commununity through my degree in Parks & Recreation Management.

I completely agree with your post. I also think that many people don't give Non-profit employees enough credit for what they do. They dedicate their lives to a cause they believe in and for many, the passion and love they feel for the organization is more important than the amount they get paid. Many people assume that a non-profit job means little to no pay which is completely not true. If you are passionate enough about what you work with, then the money will not play a huge role in what you choose to do with your life. That is what will separate the true non-profit enthusiasts and the people that are looking for a job that pays the most.

This was a very interesting post and I must agree getting a raise is not always motivating as to when you are recognized that you are doing an excellent job in the work place. At my own work I have more motivation when I know its for the team that I work for and having passion for your job is what makes everything successful and the recognition feels good, to be acknowledged as a great member feels great.

Thanks for the great info in this post! I find it interesting how pay raises can de-motivate people in the work environment! It makes sense though, seeing how pay raises can seem unfair. Competition in the workplace can lead to employees being uncreative as well. Keeping motivated employees involved with an organization is a key step to reaching their vision.

Very informative post Stephanie, great job!
First I wanted to mention that I think you made a great valid argument and many points you covered included the you-tube video by Daniel Pink summed up your argument quite well. It surprises me that business place an emphasis on performance/skill and motivation on one key source (money) and that someone’s ability to perform and do well is only based on how much it is worth for that person to accomplish the task. Do mentors and educators stay afterwards when a bonus is involve, do climbers get to the top of the mountain if there is an award, do artist only perform or work if they get paid, do children only read if they get a prize. The award system in our society seems like the only way to motivate people, the incentive is the payoff. Which begs the question, does everyone only do anything for something at the end. I believe you hit a lot of interesting points in your post and I take from it a better understanding of what "passion" really means. Just like a non-profit agency, the passion to perform is the greater good for all outweighs the greater good for oneself (payoff). That is what I will take from your post and I will carry that on with my major (tourism) as a future perspective in my life.

I really loved your post. I think it's interesting to explore people and their different motivations. I also like that you included the video. I think it touched on things that are true to the human experience. People want autonomy, mastery, and purpose. I understand why people may be motivated by things other than money, but I thought it was interesting that money can be considered a de-motivator. Money is usually considered a problem when people don't have enough of it, but to give people money and still have it be problem seemed odd. I think this idea gives people more credit than anybody normally would. I like the idea that people want different sorts of incentives and that money is not the end-all.

Hello! I really enjoyed this video! It is fascinating to me to see how incentives can effect those in the work force. As a manager of a grocery store I hadn't really considered all the side effects of these incentives. Money is always a motivator for people in our society. Money is equated with success and success to happiness. As this explains passion is a huge important piece of the non profit sector, and as a worker of this sector also, it is the pass that keeps me going.

Thanks to all for these thoughtful and kind comments. Curt, I loved your sentence about climbers, artists, and kids reading. I wish it had been in my post! :)

Shawn Rudnick - very important point, one that could expanded to a entire follow-up post. There is a minimum threshold and many times nonprofit salaries, especially entry-level, aren't there. So money isn't "taken off the table," and it becomes a distraction. Ultimately many do exactly what you say - jump ship. And for the organization, there is a very high cost to this high turnover, a cost that often isn't accurately accounted for.

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