Incentive Vs. Motivation
Incentive is tricky.
Incentive means, “Management gives you more money when you do the kind of work they want.” But incentives will not necessarily produce the best return on investment in terms of innovation, happiness, or stakeholder value.
Consider: having feathers is correlated with being able to fly, but
feathers do not cause flight. Lift causes flight.
Likewise, incentive is something management can create and is correlated with success. Big salaries, stock options, a new Cadillac, a set of steak knives, all that stuff. Strictly financial incentives worked and to some extent are expected, but in the agile era something more than financial incentive is required: motivation.
Creating motivation is not something management can do easily, but motivation is something much more valuable.
Agency Theory
In 1976 Michael Jensen and William Meckling published “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” a study of incentives. Jensen and Meckling’s work helped usher in many of the constructs we understand today by aligning the interests of executives (the “agency” of management) with company shareholders (the “principles” of management).
Agency theory has been dominant in business since the 1980s. Agency theory is what Mom and Dad lean on when they give 100 you a few dollars for every A you get on your report card. And that may produce straight A’s. But straight A’s may or may not mean actual learning is taking place.
“Straight A’s can’t hurt,” you might say.
It’s correlated to learning. But it’s not a cause of learning. All the straight A’s in the world won’t produce as many innovative problem solving skills as we’d like them to, any more than participation trophies win ball games.
Motivation Is More Than Agency
In his Two-Factor Theory, or “motivation theory,” Frederick Herzberg says incentives are not the same as motivations. Motivation means people do what they want to do in their work, where incentive means people do whatever management wants and pays them to do.
• Who gets stronger in face of failure? Motivated people.
• Who shies away from failure? Incentivized people.
Those are the two extremes in the Two-Factor Theory. Everyone would win if your company ran 100% on motivation, and everyone would lose — especially stakeholders, and eventually, shareholders — if 100% driven by incentive.
In practice, the workplace is a mixture of incentive and motivation.
Creating incentives is one of the three measures of effective
management, because 100% motivation is not possible. They are
their own kind of complementary opposites.
Agile, with its roots in voluntary networks, prefers motivated people to incentivized people. This is why enthusiastic volunteers make better agile team members than those who feel they have to be there.
Satisfaction and a Lack of Dissatisfaction
Like motivation and incentive, satisfaction and dissatisfaction are separate measures.
• You can both love and hate something.
• You can be both satisfied and dissatisfied.
• You can be both motivated and incentivized.
Herzberg says dissatisfaction, or the lack of dissatisfaction, comes from increasing the levels of “hygiene factors” like:
• Compensation
• Status
• Job security
• Work conditions
• Policies
• Supervision
Herzberg says satisfaction, or the lack of satisfaction, comes from increasing the levels of “motivation factors” like:
• Challenges
• Recognition
• Responsibility
• Personal growth
Although hygiene factors can lead to a lack of dissatisfaction, hygiene factors can not produce satisfaction. Satisfaction comes from motivational factors, and having a lack of dissatisfaction is not the same thing as being satisfied.
The past 40 years of management history has created a business climate driven by shareholder value and external incentives via agency theory. In poorly managed businesses — which are rampant the world over misaligned incentives and bad strategy suppress innovation as a byproduct of poor business culture.
To cope at these poorly managed firms, workers who would otherwise be self-motivated switch their thinking to a kind of short-term survival strategy, where they do whatever is incentivized while remaining open to new opportunities based on their real motivations — usually finding those opportunities outside their current firm.
Agile firms, on the other hand, seek to hire the kind of self-motivated workers who can thrive outside incentives. Agile — or at least the agile networks within a hierarchical firm — cannot exist without motivational factors, especially since many agile projects begin as small endeavors that might be dismissed as extra work from the mindset of incentive-driven action.
But that extra work is what those seeking satisfaction in their work thrive on. In fact, they require it. As Harvard business professor Clayton Christiansen mentions in his book How Will You Measure Your Life?, it’s when workers find work that satisfies both hygiene and motivational factors that they instinctively switch from short-term strategies to more deliberate strategies.
They switch from biding their time at a job where they are not
dissatisfied, to charging after satisfaction at a workplace that
fulfills both sets of needs.
When motivation and incentive come together, our rational Riders and our emotional Elephants can finally charge along the path.
