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WHAT ABOUT MONEY?

Does money motivate? There is a tremendous amount of debate over the answer to this question. On one side, we agree with those who argue that you can't buy performance. We agree that paying people more is not the answer. There are a lot of highly paid people who don't perform very well, as we all know. On the other hand, there is a lot of evidence that people will work harder and smarter if given the opportunity to earn incentive pay.

Does money motivate? We think it can if an incentive program is designed and implemented in the right way. For example:

1. People will perform at higher levels if given the opportunity to earn variable incentive compensation. However, the incentive pay must be separate and distinct from base salary.
You should even pay the incentive on a separate check. Your people should understand that the incentive is something they earn for objectively measured improvements in performance.  It is not guaranteed like base pay.

2.  To really motivate people, the potential must exist for incentive pay that is equal to 10 percent or more of base pay.  For many employees, a 1 or 2 percent bonus just isn't enough to entice them to perform at higher levels.

3. The criteria for earning incentive pay should be performance above a base level on a reliable, objective measure that is clearly and unmistakably related to what employees do. They must see the connection between what they do and the incentive pay they earn. And subjectivity must be removed. If they perform, they have to feel certain that they will earn the incentive bonus. Relatedly, if you want to drive performance, the measure you use to calculate whether a bonus was earned must be a true measure of employee performance.  For example, if employees have little control over profits—because pricing decisions and market conditions have a great effect—then a profit-based formula for calculating bonuses won't work.

Motivating employees for maximum performance isn't easy. It will take a lot of your time and effort. But it is easier than correcting the problems caused by unmotivated people.  And it is more efficient and cost effective than constantly hiring additional people to make up for the halfhearted efforts of those employees you currently have. With some thought and effort in applying the motivation techniques we described in this chapter, there is no reason why you should not get significant improvements in performance—
20 percent, 50 percent, or even 100 percent better.

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