What Money Makes You Do A lot, you say? Well, sure--everyone says that. But think again. If you're bringing Industrial Age attitudes about pay into the New Economy, you're in trouble.
By Geoffrey Colvin

(FORTUNE Magazine) – Many people, including his wife, thought he was crazy. A few actually believed he was evil. All Rob Rodin knew for sure was that he was worried. He was about to do something extremely radical for the CEO of a large distribution company: He was going to wipe out all--truly all--individual incentives for his sales force. No commissions. No bonuses. No Alaskan cruises or Acapulco vacations or Hawaiian pig roasts or color TVs or plaques. Just a base salary plus the opportunity for profit sharing, which would be the same percent of salary for everyone, based on the whole company's performance.

In a few days Rodin will celebrate the sixth anniversary of that decision, and he hasn't looked back. He's CEO of Marshall Industries, a big distributor of electronic components based in El Monte, Calif. (1997 sales: $1.2 billion), and I asked him how his heretical move is working out. Pretty well, it seems: Productivity per person has almost tripled, he says, "and the system is more right today than it was six years ago." He loves how the new system gets rid of distortions that used to mask real results--people shipping early to meet quotas, pushing costs from one quarter into the next to make budget, beating one another up over allocating the costs of computer systems, and a million others. Plus, he says, "look at the trust that develops when everyone's on profit sharing." Some doubters still tell him he's crazy; they insist salespeople just won't perform without incentives. But Rodin isn't changing the rules. "How do you design an incentive system robust enough to accommodate every change in every customer and every product and every market every day? You can't--you'd be designing it the rest of your life." The doubters will never stop, but Rodin realizes they are now just part of his life. "I have to explain this system to somebody every day," he says. "Except customers--they get it right away."

Rob Rodin is standing smack in the middle of one of the nastiest battle zones in modern management, because in a dramatic, in-your-face way he has raised a highly contentious question: Does money motivate? Exactly what does and doesn't it do? These are ancient questions, but they're suddenly urgent. The infotech revolution is steadily taking away the drudgery of work, the adding of numbers, the typing of data, the reconciliation of accounts, even the tightening of bolts. That ought to be great news: It means humans don't have to do donkey work and can instead spend time creating, judging, imagining--the things infotech can't do. But there's a problem. The New Economy demands that workers at every level be creative problem solvers, while many managers' attitudes about paying those employees are holdovers from the donkey-work era. "The workplace is demanding more innovation and creativity," says George Bailey, a consultant with Watson Wyatt. "That's a fundamental shift from five years ago, when the focus was on reengineering and efficiency. It's a lot easier to reward for efficiency."

We can go much further: Efficiency--of a certain type--is one of the very few things in this world you can motivate with pay. In an age when companies are desperate to make employees innovative, it has to be said that pay is an incredibly weak tool with which to build a high-performance organization.

Some people, mainly members of the behaviorist school of psychology, hate this kind of talk. "Let the Evidence Speak: Financial Incentives Are Effective!!" is what two of them called a recent article in a compensation trade journal. Okay, let the evidence speak. It shows that financial incentives will get people to do more of what they're doing. Not better, just more. Especially if it isn't very complicated. Give food to the pigeon when he pecks the bar, and he'll peck more. If you want to speed up the assembly line and you're not too particular about quality, workers will speed it up for a financial incentive. That's what the evidence shows.

But this is exactly what employers today don't want. If they want to speed up the assembly line, they rewrite the software. From employees they want imaginative thinking about how to solve problems that didn't exist yesterday. Can you get this kind of thinking by offering to pay for it?

What would you guess?

You're right, of course. Trying to pay for it gets you nowhere. The evidence on this is so overwhelming that it's amazing anyone thinks otherwise, but plenty of people do.

Start with the endlessly documented fact that money isn't what people are mainly working for. I'm looking now at a new survey of "drivers of work force commitment" from Aon Consulting; pay ranks 11th. Things like recognition and responsibility always rank ahead of pay in these surveys. And by the way, money's weak motivational power is waning; my favorite recent factoid is that the impact of monetary rewards has declined significantly with the advent of direct deposit.

In addition, trying to pay for particular types of performance, even when it works, is loaded with perils. Pay customer-service reps to answer the phone on the first ring, and they'll answer it--and then put it down. Research on pay-for-performance plans shows that many employees suspect the criteria or outcomes are rigged.

Then realize that money is especially weak in driving the most innovative employees. Mihaly Csikszentmihalyi, a University of Chicago psychology professor whose name I have never once pronounced in 12 years of daily radio broadcasts, has long studied creative people. He writes: "They all love what they do. It is not the hope of achieving fame or making money that drives them; rather, it is the opportunity to do the work that they enjoy doing."

Top this off with the finding that paying people to do things they enjoy doing actually seems to reduce their interest in doing them. The psychological mechanism is complicated, but the result has been replicated many times.

I think we can take it as settled that you can't pay more to get more innovation and creativity, because they aren't about money in the first place. So if you can't pay for them, how do you get them?

First (small) piece of advice: Stop crushing them. "It's much easier to incent people not to be innovative and creative, and many companies are excellent at it," says George Bailey of Watson Wyatt. Judith Bardwick, a psychiatrist and consultant whose latest book is In Praise of Good Business, adds, "Giving people permission to make reasonably small innovations is easy if there is no punishment for failure. But punishment is endemic."

Second (large) piece of advice: Look inside and outside your organization for employees who are naturally innovative and creative. Sounds obvious, but the implications are upsetting: You're acknowledging that some workers just aren't that way and never will be, and many people, especially Americans, don't like that idea. Too bad. It's reality, and you know it. No one can say where innovativeness comes from, but we all know some people have way more of it than others. So find those who have it.

Third (most radical) piece of advice: Give employees a stable, secure environment.

Huh? What about the burning platform, creating a crisis, getting workers alarmed and mobilized for major change? Well, that tactic has its uses. But it's the wrong way to encourage free-thinking imagineers. For insight into why, look to the fascinating new field of evolutionary psychology. Its commonsense premise: Humans evolved instincts and tendencies that helped us survive as hunter-gatherers 200,000 years ago, and, evolution being slow, those are the instincts and tendencies we carry around today. If we feel threatened, our instinct is not to be imaginative; it's to fight fiercely. "We thrive best as creative people under a stable plan we can comprehend," says Nigel Nicholson, professor of organizational behavior at the London Business School and a student of evolutionary psychology. "Space, safety, and support" are the optimal conditions for thinking creatively.

I told Nicholson his description reminded me strongly of the companies FORTUNE identified a few months ago as the 100 best to work for in America. These companies find dozens of ways to make employees' lives easier, richer, more secure; 18 of them have something you thought was extinct, a no-layoff policy. And they're winners: The publicly traded ones vastly outperformed the market last year, and they've done it again so far in 1998.

Nicholson laughs at the notion that these companies are some kind of new-wave organizations. Just the opposite: "They have unconsciously found something close to the model for which we were designed."

What's the best way to pay people in the New Economy? Alfie Kohn, a writer who is America's most biting critic of money as motivator, offers a three-point plan: Pay well, pay fairly, and then do everything you can to get money off people's minds. "Sounds right to me," says Nicholson. Sounded right to Rob Rodin. Sounds right to me too.