Do Incentives Motivate People?

That's not to say that money doesn't influence behavior. Clearly, money can motivate people, at least in the short term. The question is whether the reward yields the behavior you seek, or if it produces the opposite result. For example, if a large percentage of an advisor's income is tied to new business growth or increased profits, will he take shortcuts, bring in clients who are not optimal, defer investments that will benefit the firm long-term, take excessive risks or act outside of a team environment in order to hog the rewards? Or will the pressure to perform in jobs he doesn't enjoy yield an unhappy, abusive and resentful employee or manager?

Money, Motivation, Management

Natural business developers wake up every morning with a fierce desire to win, and an even stronger fear of losing. Money is a driver, clearly, but so is their competitive DNA. While some non-salespeople can perform well for a short time, they are not able to sustain high performance for long periods if they lack a passion for this type of work. It's no coincidence that financial services has been shifting away from the ultimate short-term reward — commission — while client advocates paid on a fee basis are growing their businesses exponentially.

Business development is not the only area in which advisory firms try to use money to motivate people. Firms commonly create bonus plans for all roles tied to firm profitability. Inevitably, however, the rank and file complain that they can't impact profitability directly because they don't control spending, decide which investments to make or generate new clients. Money is not an effective substitute for active management. Building an understanding of each person's role and offering meaningful work can and does contribute to improved productivity, a better client experience and a dynamic workplace. Employee rewards include sharing in the success of the enterprise and achieving personal growth goals. Financial incentives by themselves will not make employees work harder, smarter or faster. If you doubt this argument, just consider your own career and what drives you to accomplish what you have.

The key to creating a dynamic business is to match people to the right jobs and to create an environment in which motivated people will flourish. It's also critical to incorporate a performance management process that is applied regularly and systematically, as well as in difficult situations that invite teaching moments. Measuring an employee's effectiveness helps sustain their focus. Take a look at these five areas of performance: financial contribution, leadership, risk management, people development and client service. Define excellence in each of these categories, and align rewards and recognition with the targeted goals. These measures foster engaged, satisfied employees who are more productive and happy in the near term and more likely to stay with the firm to continue their careers.

This subtle approach separates hygiene factors — the elements that can minimize distractions to associates — from the motivation factors that drive true behavior change. When people perform well, managers gain an opportunity to increase their responsibilities, challenge them more and perhaps even promote them to new positions. Management is an art as well as a science; understanding which levers keep your associates engaged and how to reward an individual's contribution enables you to build a business and a culture that will endure.

Does incentive compensation motivate people? If you desire specific short-term activity or results, spiffs and bonuses can be effective. Over the long term, however, a poorly designed compensation plan is a disincentive.

In the end, an individual's motivation comes from within. Employees excel because they are committed to the firm's mission, they are given challenging work, they are recognized for their accomplishments, and they have few distractions that cause dissatisfaction in the workplace.