One of the biggest mistakes that managers make is using money as a substitute for active management. This practice stems from the mistaken belief that a big enough carrot will motivate people to work harder, faster and smarter.
True, compensation helps keep people engaged in their roles—as do job security, status, respect and positive work conditions. These factors all contribute to the health of a business, but they are not motivators. As a firm leader, you must hire motivated people and create an environment where they can excel. The challenge, of course, is to identify motivated people in the first place. If your employees lack the aptitude, drive or interest to do the job you expect of them, no amount of money is going to sustain their focus or compel them to do excellent work over a long period of time.
Using money as the carrot to goad performance is not a sustainable strategy, particularly with disillusioned employees. Throwing money at unhappy people will not make them happy. It just ameliorates their pain while they suffer work that bores them or an environment that frustrates them.
Different people are motivated by different incentives, including management recognition, flexible work arrangements, career advancement and stretch assignments. Leaders must discover whether their employees are satisfied in their work by having deliberate conversations with them.
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While financial incentives have been shown to produce short-term behavior, considerable evidence proves that a singular focus on money often creates unintended consequences. Take, for example, hedge funds that have been fined for buying inside information, bankers who sold home mortgages to people who could not afford them and executives who focused on bonuses rather than building enduring businesses (think Enron, WorldCom and scores of other underperforming companies).
What sort of firm culture do you want to create? Do you have clear guardrails and a process for keeping people aligned with your goals and your values so that you do not suffer from such unintended consequences?
While money may not be the root of all evil, the blind pursuit of big rewards can drive organizations in a direction that ultimately consumes them. Along the way, money can create a culture that values revenue generation over all else including safety, respect and alignment with the strategic objectives of the business.
To sharpen this point even finer, scores of professions prove that the size of the paycheck doesn’t matter, except to the extent that low or unequal pay may become a distraction. What drives the behavior of teachers, soldiers, clergy and social workers? The top performers among them are motivated to save or change lives with considerable personal sacrifice, and are driven to excel in their role regardless of pay. The same is true for firemen, police officers and missionaries.