The (Dubious) Connection Between Performance & Compensation

Mark Sagor

autonomymasterypurposeOne of my best management experiences was coaching my son’s Little League baseball team. I may not be able to remember the name of the movie with what’s-his-name in it that I saw last week but I can tell you the name of each kid on the team and what position they played.

That group played hard and had a great time in the process.

I was thinking of those boys when I read about all the grief Seattle Mariners’ general manager, Zack Zduriencik, is getting for spending $240 million to sign Robinson Cano for 10 years.

I’ll do the math for you: that works out to $148,200 per game (or about $50,000 per hour) if Mr. Cano plays every game.

This is not another rant about the absurdity and misguided values of a society that pays a baseball player as much for an hour of baseball as we pay a teacher or first responder for a full year of work that changes and saves lives. (If you want to see me get up on that soapbox you’ll have to buy me a beer).

This is a perfectly logical commentary on some head scratching scientific research about the curious relationship between compensation and performance.

Baseball is in the entertainment industry where the expectation is that star players are worth upwards of a quarter of a billion because they attract customers thereby increasing the sales of tickets, hats, hot dogs and advertising.

Those of us who are not in the entertainment business have to use a different metric to measure the return on compensation expenditures. We want to know how compensation is related to motivation and performance.

We want to know if we pay someone more will they perform better?

Everyone has to earn a living. If you are not financially stable or you feel like you are not being paid fairly this will create anxiety and anger which diminishes motivation and interferes with productivity. That’s consistent with common sense.

Once you establish an adequate and equitable baseline compensation, however, the research on the value of financial incentives gets a little weird and counterintuitive.

A 2009 analysis by researchers at the London School of Economics that reviewed 51 studies of corporate pay-for-performance plans concluded that: “financial incentives may indeed reduce intrinsic motivation and…result in a negative impact on overall performance.”

Weird right?

How about another strange story from 2009: Microsoft shutting down its Encarta website and conceding the online encyclopedia business to Wikipedia.

How is it possible that a well-compensated team of professional managers, writers and editors was out performed (Encarta’s market share, after 16 years, was barely over 1% versus Wikipedia’s 97%) by a loosely organized group of unpaid people who were writing and editing articles because they enjoyed the work?

Typically organizations spend a lot more time developing optimal compensation systems than they do developing optimal cultures that take into account the psychological factors that influence employee motivation and performance. The research suggests that is a serious mistake.

I have written elsewhere about the pure joy of doing, of being fully involved in a task. No carrots. No sticks. Just the pure pleasure of being absorbed in a task you are interested in, of improving your skills and being part of a supportive team.

That’s the kind of job everyone wants.

Next time you are strategizing about ways to improve motivation and performance don’t forget to factor in the lessons illustrated by 11 and 12 year olds playing their hearts out on a Little League field of dreams.