The Most Powerful Workplace Motivator

When evaluating compensation issues, economists often assume that both an employer and an employee make rational, albeit self-interested choices while working toward a goal. The problem, says Assistant Professor Ian Larkin, is that the most powerful workplace motivator is our natural tendency to measure our own performance against the performance of others.
by Carmen Nobel

Any parent can tell you that a surefire way to turn joy into rage is to offer your child a big candy bar—and then turn around and offer an even bigger one to his sister. Suddenly, a special treat turns into a great injustice. "Hey! How come she got more? That's not fair!"

And any hiring manager can tell you that the world of business is not so different.

“It really was all about the recognition of and comparison with their peers, and many of them were willing to pay for it.”

"This is why MBA programs send out lists of average salaries, and why students spend hours poring over those lists," says Ian Larkin, an assistant professor in the Negotiation, Organizations & Markets Unit at Harvard Business School. "You should see the angry e-mails I get from students when they find out that a job offer turns out to be $10,000 per year below the average. It's not that they really feel like an annual salary offer of $115,000 is unfair on its own. They might be perfectly happy with that salary if it weren't for the information that it's below average."

And it's not just a matter of money. In several studies of social comparison in the workplace, Larkin has found that the most powerful workplace motivator is our natural tendency to measure our own performance against the performance of others.

"Traditionally, [the field of] economics has held a very rational view of people, and there's a gigantic amount of literature focusing on financial incentives and the idea that simply having financial incentives causes people to work harder," he says. "But my research suggests that in deciding how hard we work and how well we think we're performing, social comparisons matter just as much."

The $30,000 Gold Star

The power of social comparison can lead to irrational financial decisions, according to Larkin's 2009 paper "Paying $30,000 for a Gold Star: An Empirical Investigation into the Value of Peer Recognition to Software Salespeople."

The paper describes a field study at a large enterprise software firm, where salespeople's salaries are largely based on commissions. The firm also features another common sales incentive--a "president's club" membership for those employees who sell more software than 90 percent of their peers in a given year.

The software firm uses a "commission accelerator" program over the course of each financial quarter, meaning that a salesperson expecting a high-volume sale at the beginning of a quarter would receive a higher commission on any additional sales in the same quarter. A salesperson expecting a large sale early in the first quarter of the year would rationally want to delay any other potential sales until later in that quarter, so as to take advantage of the accelerating commission schedule.

However, making the sale right away, before the end of the year, could help the salesperson achieve special recognition as a member of the club. Thus, the salesperson faces a choice: delay the sale and garner eventual commission boosts, or make the sale right away and improve the chance of attaining club membership. In the paper, Larkin uses actual choices of hundreds of salespeople facing this decision to statistically estimate the average salesperson's "willingness to pay" for club induction—the point at which a salesperson is indifferent to waiting for greater commissions and closing the deal now and getting inducted into the club. The willingness-to-pay statistic at the software firm is calculated to be nearly $30,000, or approximately 5 percent of take-home pay.

"My research shows that salespeople who are right on the margin of club induction are actually willing to pay to get over the margin and into the club," Larkin says.

Importantly, Larkin observed that there were no apparent financial benefits to attaining club membership. Recipients received a gold star on their name card, companywide recognition, an e-mail from the CEO, and a weekend trip to a tropical destination with the other club members. (Granted, the trip was worth several hundred dollars, but was far less financially valuable than a large commission.)

Club members "were not more likely to be promoted, leave for a better job, or make higher commissions in the future," Larkin says. "It really was all about the recognition of and comparison with their peers, and many of them were willing to pay for it."

Insecurity Leads To Dishonesty

Social comparison also can lead to insecurity-driven cheating, as Larkin details in a 2009 paper co-written with HBS colleague Benjamin Edelman, Demographics, Career Concerns or Social Comparison: Who Games SSRN Download Counts? The paper addresses an issue near and dear to academics worldwide: the relative popularity of working papers in the Social Science Research Network (SSRN) repository.

The SSRN is a huge academic paper repository, with more than 100,000 authors and 500,000 registered users who have the opportunity to view or download every paper on the site. For each paper, SSRN creates a web page that includes statistics on how many times the paper has been downloaded and viewed. The SSRN site also publishes various "top 10" lists in numerous fields, ranked according to how many times the paper has been viewed, downloaded, or cited elsewhere on SSRN.

Some scholars paid a lot of attention to the reported download counts of their papers; Larkin reports that one prominent legal academic described the monitoring of his own paper's download counts as "like crack for me."

Historically, SSRN allowed unlimited downloads of papers, and most of those downloads were reflected in the reported download count on each paper's web page. It became apparent that many authors were gaming the download count system by repeatedly downloading their own papers, so that others would see the high download count and assume that these particular papers were very popular. SSRN maintains detailed historical records of every paper download and is able to determine when papers appear to be downloaded over and over by the same person.

"It's like having a convenience store that's not manned, and everyone who comes in can either steal or pay, but there's a video camera that nobody knows about, and it's tracking everyone's every move," Larkin says. "For years, some academics got away with inflating their own download count numbers, but we were able to see exactly who was doing this, and in what circumstances."

In their research, Larkin and Edelman teamed up with the SSRN and set out to determine the factors that would make academics inflate the download counts of their own papers.

"As economists, we thought, hmmm, it's probably people who are up for tenure soon, or maybe it's the people who just graduated, and they want to get their name out there," Larkin says. "We were thinking very much along the traditional economic model--people doing things for rational, career-promoting reasons."

Larkin shared these hypotheses with HBS colleague and mentor Max Bazerman, a leading ethics scholar, who had a different theory. "Max told me, 'I'll bet people are doing this because they feel bad that their papers aren't being downloaded as much as their colleagues' papers,' " Larkin says. "So we looked at that."

It turned out Bazerman was right. The researchers found that authors were more likely to download their own papers repeatedly when a colleague's paper was performing especially well on the site, or when a very similar paper to an author's was newly released and received significant downloads. Deceptive downloads also increased during times when a paper was close to gaining (or losing) placement on a top 10 list. (Ironically, one of the most downloaded SSRN papers of all time is 'I've Got Nothing to Hide' and Other Misunderstandings of Privacy.)

"Again, what was surprising to us was how little we found in terms of the economic reasons for doing this," Larkin says. "By far, the biggest predictor of this behavior was fear of being socially inferior to one's peers."

(Those tempted to boost a paper's usage stats should note that SSRN's terms of service now state that the attempted manipulation of download counts is against site rules, and that the organization retains the right to ban anyone caught abusing the system.)

Ramifications For Salary Managers

The field evidence from the worlds of software sales and academia indicates that companies need to bear social comparison in mind when designing compensation plans. Larkin discusses the issue in The Psychological Costs of Pay-for-Performance: Implications for the Strategic Compensation of Employees, a paper he cowrote with HBS colleague Francesca Gino and Washington University's Lamar Pierce.

The authors argue that paying each employee solely according to his or her performance is actually an inefficient strategy; it can lead to resentment or even sabotage on the part of employees who believe they are underpaid compared with their colleagues. Thus, a standardized salary scale, combined with ancillary incentive programs, may be the best way to motivate employees. "When deciding how much effort to exude, workers not only respond to their own compensation, but also respond to pay relative to their peers as they socially compare," the paper states.

That's important food for thought, considering that Facebook, LinkedIn, and other such sites have made it de rigueur to share information that we used to keep to ourselves.

"It used to be that our salaries were very secret, but they're getting less and less secret because of social networking," Larkin says. "And people get upset quickly when they realize that there are large variances in how much other people are paid. Companies need to realize that with the overflow of information these days, paying peers differently is going to affect not only how those people feel but how their colleagues feel as well."

About the Author

Carmen Nobel is the senior editor of Harvard Business School Working Knowledge.

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In order to be published, comments must be on-topic and civil in tone, with no name calling or personal attacks. Your comment may be edited for clarity and length.
    • Anonymous
    What about Less work. I dont like giving long working hours to company.
    • Kerry
    • Director, Safelite
    The examples here are all "white collar" the findings apply for hourly workers as well?
    • Gareth
    • GPW Research
    In regard to white collar vs. hourly workers, Maslow's heirarchy determines that hourly employees are going to be more motivated by $$ than white collar workers. However, the cost of recognition is low, and so while the relative merits of the different rewards are different they both have value.
    • Anonymous
    I feel that this is the shift too. Companies are more and more seeing their employees as assets and caring for taking care of them more. This is related in the way, that social aspects matter. Humans are rational but emotional too, and this can take rational away at times
    • Atul Guglani
    • Director, Mantex Technologies
    The most powerful workplace motivator is " Stability ". As long as employees see themselves undisturbed in their own sphere of work, they feel motivated. As soon as challenges are laid out, the first reaction is confrontation and nonacceptance and then a passive agreement in order to not being seen as the obstructionist.

    There is this very small percentage of employees, who see bigger deliverable s as the key performance factors and an opportunity of rewards and recognization .

    This becomes more valid as complacency sets in after the age 35. Somehow, management is still not ready to recognize that ageing is itself a biological virtue, which inhibits risk and challenges.

    Relative recognization does induce competition and performance, but most of the time, a closer analysis shows the achievement has a darker side to it. More seen in case of Sales, then production. Many such sales are made, where one can see that practically the product is being pushed down the throat of the customer, rather then being pick of the customer. This has its own consequences.

    However, to bring in the desired growth, it has to set a quantum deliverable which sounds stable, but accelerates the results and has reward tags that look much easy to achieve. And be ingenious in schemes , where Top Performers are identified in each area of operation, be it manufacturing, design, personal,logistics, finance, sales etc. and their minds then used as a power of acceleration within the whole organization and not simply an odd man being rewarded for super performance.
    • Anonymous
    Besides the change mentioned in the articles, the other issue is the compenstaion comparison between the new employees and current position holders. During the talent competition war, more and more companies pay higher and higher than before to attract the talent. It lead to the unfair in compensation between the new employees and current position holders who are doing the same job.
    How could we maitain the equity and retain current talents?
    • Govind Sridhar
    • AVP, Nomura
    In the last few years, the peer competition has risen tremendously. This not only exerts a pressure on the topline and bottomline but also forces org. to retain talent, and keep employees relevant and aspiring.

    In terms of compensation satisfaction, the % of people in the industry who are happy with their pay has always diminished. I would look at a converse here. The avenues to make employees happy, has narrowed down to compensation advancements. This also provides a vivid opportunity for peers to poach talent.

    I believe personal interest in an employee's career maturity plays a vital role in motivating employees. It builds on the trust factor and positivity of the employee-org relationship. Overengineering this, however, makes the employee complacent and we observe a reduced self drive to excel.
    • Michael
    • Owner
    I would encourage high-performing individuals to consider the virtues of starting their own business.

    Although I have learned a great deal about variables in motivation, I wonder about the ethics of helping mega-corporations squeeze more work out of their wage-slaves. Thus, I will keep what I know about this topic to myself.
    • David Klaasen
    • Director, Inspired Working
    I read this article with great interest because many of my clients struggle with the whole incentive debate. I think it is worth mentioning the research mentioned by David Rock in his fascinating book "Your Brain at Work". He explains that the balance of how we feel amongst others is actually dictated by our perception of Status. Your brain maintains and continuously updates complex maps of the "Pecking Order" of the people around you. The studies he mentions in the book show that you create a representation of your own and someone else's status in the brain whenever you communicate and this influences how you react with others. Changes in status (your perception of the pecking order) bring about changes in how millions of neurons are connected. This is powerful stuff because it's one of the primary rewards or threats in human beings.

    Rock mentions that "If you have ever been in a relationship where one partner starts earning more money than the other you will have perceived these wide-scale changes in brain circuitry taking place and which can bring some interesting challenges".

    When we have a sense of increased status we feel wonderful because the brain releases a dose of dopamine and serotonin, the hormones that make us happier. Cortisol levels, a marker of stress, go down and Testosterone levels go up, helping you to feel strong and confident and even improving your sex drive. According to the latest research this positive combination of happy neurochemicals provides us with an increase in the number of new connections made per hour in the brain. This means better awareness of others and better access to the subtle neural connections that can make us more intelligent and helps us live longer.

    A drop in status feels very dangerous. A perception of being 'less than' others activates the same region of the brain as physical pain. One study showed five different physical pain regions of the brain lighting up when an individual felt a drop in status. Social pain can be as painful as physical pain because the two seem identical to your brain. If you feel a 'status threat' your brain reacts like it is about to be hit with a stick.

    It is good to see the research continuing.
    • Motty Perel
    • A veteran of many jobs., ANTS
    When employees receive different salaries because their bosses judge their values at work differently then sure enough the lower-paid do resent. This is an unavoidable consequence of the Employment Mode of Labour Utilization (MLU). This is one of many good reasons to switch to the next, Entrepreneurial MLU.
    The switch should be done on a voluntary basis: each employee should be given the choice to join or continue to be an employee, i.e. to receive a full salary. Those who join agree to be paid their salary together with the profit or loss their activity produces to the corporation. There is a simple formula to calculate the dollar amount in my book Smiling for Profit. Go to
    As an employee, the worker as well as the entire workforce, has no personal interest in enriching the employer too much, so they produce at a level that ensures corporate survival - and no more. That keeps their jobs intact. That is all they need.
    In contrast, those who join become entrepreneurs: they invest their labour for personal profit. The group that joins is interested in maximization of productivity because that maximizes the profit they make of their salaries. Among those people the peer pressure is toward profit maximization, while among those who remain employees there is resentment to that. This is a temporary situation because along a few quarters all employees will join the entrepreneurs; there is no advantage in staying in a position of an employee, literally "the used one".
    At that stage of affairs, when the overall peer pressure is toward corporate profit maximization, some members of the workforce will be recognized by the rest as more valuable than others. Those more recognized will have the option to stay put with their basic salaries, enjoy the appreciation of their peers and enjoy the profits equal to those of others, or demand increases to their salaries.
    Demand from whom? From their boss? No! From their peers.
    If the peers agree to the increase because they recognize their fellow's exceptional contribution to their profit on wages, he will receive the raise; if not, he won't. If he does not like it, he can quit and his peers may suffer a loss in their success.
    Under this arrangement, a higher wage of a peer will not be resented, because it was agreed upon by the peers rather then given by the boss.
    • Vincent Fong
    • Program Manager, Nielsen
    The most powerful workplace motivator is knowing that at the end of each day, I as an individual am valued for the services I provide to the organisation that employs me. That my peers and superiors expect nothing less than earned respect from me as I them.
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited
    Salary is indeed an important motivator. Therefore, resentments
    arise when decision to award more to one than the other is taken for subjective reasons which do not conform to the basic formula of paying in proportion to the performance determined objectively taking all factors into account.
    That said, we need to examine what an employee considers more important for his satisfaction to serve the organisation optimally. Recognition is one. Then comes the working environment: a healthy environment free from unnecessary workplace tiffs is welcomed. Employees generally also want to add to their knowledge and prefer a learning atmosphere. Behavior of the boss also matters a lot.
    There are many other factors in keeping with the individual expectations and need to be considered on case-to-case basis. If the management is sincere and positive, this can be done without creating any misgivings.
    • Srinivasan
    • Director, Hewlett Packard
    There are a few things that motivate people (and there are trade offs that each make - varying on situation internally and externally in the market place):
    1. Salary (for sure)
    2. Visibly powerful/ controlling others - when people are seen as being powerful, there are people have traded that for a certain lower salary - Pretty common when you chose a government job over a private sector... Also happens in private sector too - these days.
    3. Ability to do what you would like to. This is like having attained a nirvana state. e.g. teaching/ coaching/ mentoring; as some one said working less hours... in the comments.

    But in whatever motivates - most people need to be doing better than their peer-set. That relative position has become a necessity in this comparative world.
    • Anonymous
    In today's global village, it is more prudent to base compensation on the local market value of each individual. And incentives based on appreciation and recognition work the best.
    • DrAJaganMohanReddy
    • Associate Professor (HR), Institute of Public Enterprise
    Nothing wrong in sharing the information. As long as we are transparent and sincere in evaluating the people and assessing their contribution, no wrong in sharing. It is true that people compare them selves and look at their colleagues in terms of work related issues.Here Manager has to play a crucial role in terms of goading and guiding lest they may think otherwise.
    • Alexis Bernard
    • Program Director, TPCP
    I found the article to be interesting and in the program I run (a social service program) our management team has proven this to be true. Based on educational requirements the individuals working in the social service field are already lower paid than many of their similarly educated peers which means that money was not the primary motivating factor in their decision to enter this field. The individuals who work for us are asked to meet an 80% productivity standard - meaning that they are with clients and/or performing "billable" (Medi-Cal) services for 80% of their 480 minute work day. This is a challenging requirement particularly when you take into consideration the fact that many of the individuals we are priviledged to serve aren't always motivated to meet with their "case manager." A couple of months ago I started giving out certificates to people who met or exceeded the goal. The certificate showed t
    hem to be a "billing superstar" and thanked them for their hard work. Morale was low and I was trying to do what I could to acknowledge these individuals who already have a difficult job and on top of that were able to meet and/or exceed productivity expectations. I was shocked to see the certificates going up on walls of cubicles and offices. The majority of recipients were posting the certificates every time they received one - even those people who typically met the requirement every month. The even more interesting thing is that after I started giving out the certificate more people started accomplishing the goal. Prior to the certificates we'd always given out a small token of appreciation to these individuals in the form of a Starbucks gift card on a monthly basis; however, issuing the cards didn't ever have the same effect as adding the certificate to the card and presenting them monthly during our all staff meeting. I'm not certain if the reason this
    has met some measure of success is because of the social comparison factor or simply because people like to be acknowledged for the work that they are doing, but nonetheless I found the article piqued my interest and made me think about what I'd been doing in a different light.
    • Audra
    • Consultant, 4QR Business Solutions
    I agree with many of the comments here, especially regarding people wanting stability first and being appreciated for the work they provide. A company can only motivate so far with money and incentives like trips, gifts, etc. If monetary incentives are used to much without the employee feeling his job is secure and his work is appreciated then the company risks losing that employee at the first opportunity that the employee feels he will gain better security and appreciation. And then there is always the problem that someone will come along and do better. Creating a good work environment where people enjoy coming to work can do wonders for the team motivating each other.
    • Anonymous
    Did I just miss out appreciation?

    Appreciation is affordable for all size of businesses and is one of the most powerful tool to keep employees motivated.
    • Dave Wisland
    • Owner, Wisland Marketing LLC
    Can the logic and statistics of this study or others determine the value/ROI of peer recognition? Keep in mind that the salespeople "on the margin of top 10% club induction" who might be willing to forego such an amount amount have to be very small (possibly another 10%). Assuming the peer recognition opportunity can be broadened to appeal to 80% of the sales people, does anyone know how might maximum ROI be determined? ie: to what degree does an investment in peer recognition mazimize performance?
    • Mary Wilmer Mills
    • Executive Coach
    I also want to point to the work of David Rock and his SCARF model (Status, Certainty, Autonomy, Relatedness and Fairness). The threat reaction in the brain to these five areas is significant, with the threat to status the most powerful.

    In this regard, many companies reduced the number of job levels by creating broad bands so employees weren't focused on the next promotion quite so often. Lately, some progressive companies have eliminated giving employees a performance "rating" (for example: Meets, Exceeds, Excels) and have focused more on the conversation between the manager and the employee.

    More pressure is now on managers to have more meaningful conversations with employees. Threats to status will not go away, however, and it's important for managers to understand this. More than ever, managers need to have considered, thoughtful, authentic and ongoing conversations with direct reports about job expectations and performance. I recommend David Rock's book, Quiet Leadership.
    • Dr. Bob Preziosi
    • Professor of Management, Huizenga School of Business
    This has been referred to in the field of motivation as equity theory. The concept is decades old. Ihave employed it in both business and academe for at least 30 years.

    What is new in motivation is The Progress Principle, a book by Teresa Amabile and Steven Kramer from Harvard Business Review Press. This book is a must read for managers and leaders.
    • Elizabeth Iruka
    I think salary scale should go with the level of qualification and experience, but is not always. So if the labor market should get up and give standard scales of salary for positions with professional education years plus annual increment that must be carried out by all employers to the employees, and mandate them on this issues by making it legalized. Thanks.
    • Sai Dattathrani
    Completely agree. Comparisons and differentiation are classic de-motivators. And in the long run, a bane for the society on the whole. Some of my thoughts @ I would rather think that workplace motivators would be support to understand one's true strengths / desires, and help realize their fullest potential, freedom, ownership etc.
    • Mike
    Best motivator is my dream car. At least it was. Than it was my flat, and now my beautiful kids.
    Maybe I am just a serotonin freatk like it's said here:
    • Dan
    • Wallace, Tailwind Discovery Group
    This is old news. The low (and sometimes negative) effect of money on motivation was described at length in Daniel Pink's "Drive," which came out last year. To save yourself some time, just Google Daniel Pink Drive RSA and watch a fantastic 8-minute video. The short answer: money matters only until you have enough. Beyond that, it actually tends to worsen performance. People are motivated by autonomy (sense that they control their work and destiny), mastery (sense that they are learning something), and purpose (sense that what they do is connected to some higher good.) Purpose is BY FAR the most powerful motivator.

    (To answer one question below, yes this is true for 'blue collar workers, not just white collar.)

    In Predictably Irrational, Dan Ariely explains that social motivators are for more compelling than economic ones, and that replacing the former with the latter is disastrous. His example: Imagine that your sister-in-law feeds you a fantastic Thanksgiving dinner, after which you thank her and then ask how much you owe."

    More broadly, the field of "Behavioral Economics" has been around now for a good 20 years. These are the psychologists who study economic decision-making. They've done a great job of demolishing the myth that we are rational creatures who make decisions based on the greatest economic utility. See title of Ariely's book above.
    • Anonymous
    In this economic environment, in my Fortune 50 company, the best motivator is keeping your job, i.e. "stability" as someone mentioned. Salary increases have become so small that they have become demotivators. Salary increases are determined by your performance evaluation which are for the group, mandated by a skew.
    • Phil Hyland
    • Manager, In transiton
    Dan Wallace, in his comments referencing Drive and Predictably irrational sums it up perfectly. Some discussion on the drive to contribute to society as a motivator would also be useful.

    The more people are focused on money the more dishonesty tends to creep into metrics and life, this must be considered in setting up pay/rewards systems. note some companies are going away from strict pay for profit because it has led to ethics issues with consequent major (multi milliondollar) penalties.
    • Miki Saxon
    • founder, RampUp Solutions Inc
    The desire to be treated fairly in comparison with one's peers applies to incentive stock as well.

    This is especially true in startups where the repercussions of not doing so carry far more impact.

    Hand-in-glove with the desire for fairness is the desire to excel in ways that are recognized by everyone in the organization.

    This desire to be treated fairly yet still have the opportunity to shine is what drove the develop of Option Sanity, our stock allocation system. (
    • Roy Bhikharie
    • Man. Dir., Papaya Media Counseling
    That income inequality (and perceived corruption) best explain the level of mutual trust--consistent with the notion that fairness matters more than similarity or aversion to heterogeneity {e.g., Alesina, A. & La Ferrara, E. (2002). Who trusts others? Journal of Public Economics, 85(2), 207-234}, and more than civic engagement emphasizing social networks {e.g., Putnam, R. (1993). Making democracy work: Civic traditions in modern Italy. Princeton, NJ: Princeton University Press}--, has been known for some time. In addition, the influence of the relationship between trust and empathy {e.g., Ickes, W., Stinson, L., Bissonnette, V., and Garcia, S. (1990). Naturalistic social cognition: empathic accuracy in mixed-sex dyads. Journal of Personality and Social Psychology, 59, 730-742; Young, L., & Daniel, K. (2003). Affectual trust in the workplace. International Journal of Human Resource Management, 14, 139-156} is also evident on
    a global scale: Trust is a foundation for social order within and beyond organizations, especially in a global business environment that is increasingly complex and fast-paced {e.g., Thoms, P., Dose, J. J., Scott, K. S. (2002). Relationships between accountability, job satisfaction, and trust. Human Resource Development Quarterly, 13(3): 307-323}, which benefits collaboration, productive work relationships and high performance {e.g., Costigan, R.D., Ilter, S.S., & Berman, J.J. (1998). A multi-dimensional study of trust in organizations. Journal of Managerial Issues, 10, 303-318; Zeffane, R., & Connell, J. (2003). Trust and HRM in the new millennium. International Journal of Human Resource Management, 14, 3-12}.
    • Kevin
    The most powerful workplace motivator is knowing that at the end of each day, I as an individual am valued for the services I provide to the organisation that employs me.
    • john parikhal
    • president, joint Communications
    The title is misleading.

    The article is mostly about salespeople - not ALL employees.

    And, on close reading, it appears that it is more about 'recognition' which is a critical piece of employee performance - specifically, that they feel 'valued'.

    Money is only one aspect of recognition. And a lesser one at that.

    I suggest that it's better to read 'Drive' by Daniel Pink. He suggests, correctly, that money is NOT a key motivator (except in deadening rote jobs) and then provides solid research on how to create environments where employees motivate themselves to excel.

    There is a solid body of work that says that pitting your people against each other is generally counter-productive.
    • Efe
    • Director, Nyoremes, UK
    Great article! Thanks for posting and for sharing the studies.

    I feel that companies are made up of several teams of people who perform different roles to achieve a common goal for their firms. For this reason, I believe that everyone involved should share the consequences of their company's successes and failures.

    People work hard at what they love and such people will feel that it is quite unfair that some colleagues in the same grade as they are would receive a higher pay or recognition based on individual performance. The obvious thought that comes to mind is that "we all did it ... not just you".

    If we fail at what we attempt, then all should (and usually do) feel the pain and learn the lessons that come with not meeting the targets we set for ourselves. Equally, in times of success, everyone involved should be mutually compensated according to what is being offered to all in their level or grade.

    Whether compensation is financial or through recognition is besides the point which is to reward or chastise all involved, equally.

    We're all in it together after all.
    • Patrik Vervinckt
    • General Manager, HRTorcon
    Building further on Carmen Nobels contribution, one could summarize business realities w/ regard to compensation systems as follows:
    1. Pay secrecy is a myth, and the lack of perceived internal equity w/ regards to pay is detrimental to performance.
    2. Managers tend to be unable or unwilling to thoroughly evaluate individual performance, and to explain in detail individual pay-decisions to their team members. This is due to a lack of training given.
    3. The trend in large multinational corporations is towards more discretionary pay and bonus systems.
    This should make a 'deadly' mix, and now we can understand why pay-for-performance on this basis can only be detrimental to performance.