[Music] i will talk a little bit about compensation and the thing is that when i look into hr departments i mainly find women in training and development i find women in talent acquisition but when i look into compensation benefits i mainly find men at least it's what i see not only in terms of gender there seems to be a difference also i see that in compensation benefits we very often find people colleagues who who have a background in in law in finance or yeah in business and uh that's about psychology and and i'm really surprised
about this because as you will see in this presentation compensation is mainly about about psychology and not mainly about legal or financial issue even though we talk about money in the end of course but it's not a financial thing actually so so uh let me start with sharing with you different views on the relation between reward and work how these two concepts are are linked and of course there is the idea the classic idea that many people on the street maybe would share say well reward is the reason for work i work for money i
mean that's why i work you know that's the that's the ultimate reason uh but but some some would say no re reward is equal to work i will i will share this point later in a few minutes it's when the work itself is rewarding we name this intrinsic motivation uh but also when you ask economists for instance they would say people employees they add value i mean that that's what they do right they add value and the value they create must have a price and the price is the reward so okay that's that's another view
how you can link these things but for some other people reward is the precondition of work i mean i mean let's take my example i'm a professor at a university believe it or not but i don't work for money really i i work because i'm excited about hr i'm excited about industrial organization and psychology i really love what i do also what i do now i really love so but i i earn money and i have to because i have to spend my living so reward is the precondition so that i can do what i
really like right but we also say we can also say from from from psychological research that once you start paying somebody for any kind of activity the work the work uh the activity becomes work so reward turns an activity into work i mean you find this very often people do something just for free you know because they like it but once you start rewarding them they consider their activity as work uh we're also gonna look at this so just as a kind of a starter yeah there is not this simple view on the relation between
reward and work now um i think you mentioned it um some some years ago one man really scattered the shook the the world of compensation in 2009 then pink did this ted talk about the puzzle of motivation i mean this ted talk is excellent no doubt about it and it's he's a great presenter uh by any mean so really absolutely uh brilliant and that ted talk shook the world i know a lot of compensation manager who start to think differently about compensation after that talk and what that then pink said was uh contingent pay or
pay for performance performance does not work for creative tasks it rather does harm so the consequences when you do creative tasks and probably you do yeah then you should not be paid based on performance nice okay so uh he said instead if you want to motivate people in creative tasks question is do you really need to motivate them but anyway he said if you want to motivate these people you have to offer three things autonomy monetary and purpose well okay tell this to your people in your organization well you don't get paid for your performance
maybe you get autonomy mastery purpose instead say oh thank you that's cool okay here's the thing what what dan pink did is he looked primarily at motivation he he brought up the idea that reward is mainly there for motivation which is true to some extent but there is much more to it which we should not ignore and this is what my speak is all about so to put these things here in a more academic terms uh dan ping said and this is absolutely clear that the evidence is strong that for tasks who are like this
certainty of outcome is high certainty of process is high the people know exactly what they do it's a repetitive task there is no thinking in it maybe pay for performance works perfectly well right but for those tasks where the outcome is not clear and the process to get there is not clear and where the scope is rather huge variable pay or pay for performance does not really work so okay that's the idea so if you have tasks like this maybe in production whether people exactly know what they do over and over and over again it
works tell people the more apples you collect the more money you receive works okay really so we really can say that contingent pay works best with certain tasks no doubt about it but now let's look at creative tasks what's going on there i mean this is a creative task if you have kids you will see that they don't consider their activity as book really not they enjoy drawing pictures i mean give them a piece of paper some pen and they start drawing right away so why because they really like it so here is a classic
experiment that you need to know so you have children split into three groups one group is told well draw pictures and as a reward you get a good player award afterwards for drawing pictures the second group got a good player award no the reward just accidentally as a surprise afterwards and the third group got no award at all okay and then they draw pictures luckily okay all three different groups and then a few weeks later the same children got together and they again had the chance to draw pictures they had pieces of paper uh pens
on their table and and they had the chance to voluntarily draw pictures and then the researchers looked okay how much time do they spend on drawing pictures and what you see is that the group who got an a reward an expected reward earlier totally collapsed they stopped trying picture i mean they said why should i i don't get a reward for it so why should i draw pictures while the others had the same activity as as before and even when you look at the quality of of of the pictures uh judged by the shuri the
quality was really bad for those who got rewards earlier so that's exactly this idea that that reward money can turn an activity into work yeah and what you get in the end is something that we call extrinsic motivation intrinsic motivation get transformed into extrinsic motivation i will go deeper into this in a minute also i mean there is this nice this nice initiative from uh pizza hut since 1984 the idea was to encourage children to read books so what they did is they collaborated with schools and implemented something like a performance appraisal we could say
yeah so teachers made a target setting with their children how many books will you read over a given period of time after a while the teacher checked with the children so have you read those books and and when the children read the books they got a voucher for a pizza and i mean really uh barack obama he's he supervised that thing he's strongly supported this this initiative the idea was encourage children to read is wonderful no it's not there were psychologists who did some research on this initiative and they came to the conclusion that that
what this initiative did it created fat children who hated to read books i mean look what they done done the children they preferred simple books short books uh with many pictures and big characters they avoided reading books actually yeah they just did the easy way they would never read harry potter i mean that's that's sick you know so you can ask yourself did this thing now motivate or not to read books the conclusion was yeah rewards motivate yes of course they motivate to receive the reward so it was not about the books it was about
the pizza and and that's a real downside of those things so so uh and the secret behind all these things is the difference between intrinsic and extrinsic motivation and there is much sad about these two kind of motivation let me put it a little bit more simple here is work and here's reward when you do the work just to get the reward or to avoid punishment we name it extrinsic it comes from the outside extrinsic okay well what is what is intrinsic motivation actually i would say intrinsic motivation is when work is equal to reward
it's simply the same right it's when you play an instrument when you when you do something in art when you do sports when you play with your children you don't get money for it you like to do it you love it it comes from the inside there is no difference between here i do that to get this the task itself is rewarding okay so that's the first idea about motivation let's be careful here okay um so um there was the idea for instance at wikipedia or some institutes who are managed blood donation how you could
add some extrinsic motivation to already existing intrinsic motivation yeah i mean most people donate blood for free or they they they contribute to wikipedia just for free without getting money so the idea was hmm maybe we can do this here we we have people who are intrinsically motivated cool right that's wonderful yeah okay fine and now let's add some extrinsic motivation to it a little bit so that in the end we get a total motivation of this intrinsic motivation plus extrinsic motivation is equal total motivation that was the idea it sounds reasonable but what do
you get in the end you get this what remains in the end is extrinsic motivation and the performance based on extrinsic motivation is significantly lower than the performance you receive based on intrinsic motivation and we also learned from many studies that extrinsic rewards kill intrinsic motivation think about this experiment i was sharing with you about the children so what do we want we want people who are motivated and capable competent this is what you want this is what we not want not motivated and not competent people we want people who are motivated and competent now
let's think about money if you want to increase motivation with contingent pay you have the implicit assumption that the people are not motivated you have to push them you have to force them right that's the idea and as we already learned in some circumstances contingent pay can motivate people with boring tasks repetitive tasks with creative tasks it does not how about competence we must see and that's a simple assumption you don't need to be a psychologist to understand this is you cannot make people more competent by paying them money you simply don't if i tell
you play stairway to heaven on the guitar and you say i could not i can't i say i give you 1 million euro right away if you play it you say well i still can't do it money does not increase your competence at all so if you want to have competent people you either develop them or you acquire the right people that's about hiring recruiting talent acquisition but here's the thing if you want to have the best people in your team you have to pay a decent money but this is not about motivation this is
about acquisition look at myself when i do a speech a presentation like now i'm really motivated believe that i'm fully motivated really and you can pay me additional money i will not become better so i'm motivated yeah but to get me on the stage you have to negotiate hard with me because i want money to do that thing but that's not a matter of motivation that's a matter of acquisition so that's something that then pink missed totally and what many companies really uh experienced was that um they stopped pay for performance and lost the best
people so be careful be careful here yeah or we i could share with you that the general advice pay enough to get the people on board mainly on base pay mainly on base pay and then do everything to get money out of their minds really so if you want to have core best scientists in your team you have to pay money if you want to have leonel messi in your team you have to pay much money but leonardo merci on the field will not think about money a second right please this is the difference which
is really important now let's turn our view to something else the social dynamic that also very important so in some circumstances people work like this separated divided everybody's doing his or her own work right it's fine so but some other people work like this they are in a team connected interdependent yeah only the team as a whole can succeed and not the individual now that feels like this i mean people solve problems together they share problems they exchange their views the work of one person is the input for the work of another person and maybe
vice versa so i mean that's a team right i mean that's how team works right and um and uh now now here's here's the point money compensation can affect the way how people collaborate and we can talk about this for hours it's it's quite complicated but but there's one idea at least that i found very important and where we have strong evidence in in in scientific research is that once you reward individuals maybe even based on a forced ranking that turns colleagues into competitors and again you don't need to be a a psychologist to understand
this i mean i mean look at this this is the typical force distribution idea that many companies have they have their annual performance evaluation and the managers are are forced to split their team into three groups the a players high performers the maturity which is are the b players and into c players the low performers and they are forced to stick to certain percentages twenty percent a players seventy percent b players ten percent c play uh seventy percent b players sorry ten percent c players okay if you do something like this and the people realize
that only a few of us can win they become competitors and that's again something that you don't want that's something that you don't want okay so that's another idea it's not about motivation here and it's it's it's it's not about acquisition here here it is about the social dynamic in the team again a psychological point now i come to a fourth idea which is equity also something equity is something that then ping completely missed and i did a i did a an experiment where i did exactly what stan pink showed with a candle problem and
people who did a creative task they got no award and the idea from all the evidence is if you don't get an award a reward for doing creative tasks you are better than those who who receive a reward now i did the following i told i told the subjects that okay you don't get a reward for doing that task but the other group in the other room they get a reward if you know that you don't get a reward but the other schedule reward that kills your motivation completely because now something else comes into play
lacking fairness and lacking fairness is that one of the greatest demotivator of all times so that's again something that that we have to consider so when we look at fairness more in more academic terms the idea is that contribution must be balanced with reward there must be a kind of uh yeah it must be balanced though it must must must be in line so so and in this picture you can see in the middle i named the fairness zone right and and maybe we can say okay these people here oh there's slight relation between contribution
reward yeah what they do and what they get right i mean that's something that we always do uh since since decades we create pay structures right we say look this is your responsibility pay grade three and this is your responsibility pay grade five and within these different pay grades which reflect certain levels of responsibility there is a pay band and this is what you get then okay so we link responsibility or contribution to reward so these people here are in the fairness zone and and those are not and those people now must feel being treated
unfair um so on the right uh right bottom right corner there's a person who contributes much but gets less or the red dot on the upper left side higher reward by contributing less okay this is one thing and this is where we always focus on in compensation linking the two things but that's not the point psychologically that's not the point what people naturally do is they compare themselves to their peer to their peer to other people they they see and they have an idea about the contribution of other and when i know what the others
are and i compare myself to them so what rather happens is something like this you have these two people both contribute the same but one gets more report what guess who is demotivated the red one red one here here the black one the red the red the red one i contribute more but get the same as the other person so and that does not relate to the right so the fan is sound legally fine it's a good idea having pay structures like this but what matters in the end is the comparison between the peers that's
that's that's the major point so and we know that even a little lack of fairness destroys the motivation of an affected person okay so if you have a star in your team a star sales person a star scientist you know these 10 of people who contribute to 80 percent of the team the lionel messi in the team and you you stop paying for a performance and lionel messi gets the same total reward than the others you kill lionel messi's motivation that's a that's a that's that's difficult you know that's difficult now you have creative people
where you say i don't need to to reward them because they are intrinsically motivated i don't want to kill intrinsic motivation okay fine but if you don't do this you lose them it's a dilemma it's a dilemma and as far as i can tell there is no real solution to this so to sum up more than dan ping said just motivation i would say there are four things that you need to balance whenever you talk about compensation four things and i don't tell you now how you're gonna do that really i i i won't do
this okay i just want to make you aware that there is this challenge to balance these four things first is equity or fairness whatever you do in your compensation system it must be fair and it's it's a challenge in itself and i've seen so many companies who made very sophisticated compensation system and they try to add more fairness step by step and he may try to make even more fairness by adding a new policy or something this and what i said what is what i've seen over and over again the more you try to make
things even more fair a little bit the more unfair it gets and you will never ever achieve full fairness it's not possible it's not possible yeah but you have to try it so it's it's that's one thing but the other thing is the motivation you were talking about this of course you don't want to demotivate people and you don't want to transform intrinsic motivation into extrinsic motivation because you lose performance you don't want to do this at the same time you know that in some tasks you can motivate people with money or you only can
motivate people with money i mean when we think of the really boring task the ugly task where nobody would do voluntarily so this motivation thing is something this is something that then ping will focus on but also the social dynamic is something what does compensation do to the team and to the collaboration to the sharing and to the the the the connectivity of teams the social the social idea is absolutely key very complicated very very complicated and the last thing is is also your compensation system must be shaped in a way so that you acquire
the right people and keep the right people on board and as i told you this has nothing to do with motivation this is acquisition so i ask my students very often are you motivated through money does money motivate you in business and most say yes of course this is why i do my job hold on this is not what i was asking are you motivated through money motivation means the motivation in your daily work what they mix up very often is motivation with acquisition of course you want money to do the job and if somebody
offers you more money for the same job you take the other job i would do so i mean sorry if you're not dumb people we rather want more money than less money i've got a thing so erective and 99 of the people that applies so of course money plays a role when you want to acquire people and get people on board so this is the whole range and you have to balance these four balls and it's it's it's not just motivation it's it's everything and and this is what i wanted to share with you and
uh i really thank you for your time and i thank you for listening [Music] so [Music] you
