Inspiration vs. Compensation: The trouble with money

There is a common misconception that people will work harder to earn cash than anything else. If you ask, they will say cash or money is more appealing. However, based on academic research and practical application, we know inspiration is more powerful than money when it comes to changing behaviour.

Does having inspired sales teams or employees really matter?

A study published in the Harvard Business Review revealed that inspired people:

• We’re more creative
• Believed more in their own abilities
• Had higher self-esteem
• Spent less time pausing, and more time working
• Were higher in mastery of work, absorption of ideas and competence
• Set bigger goals, display increased progress toward goals and are more likely to attain their goals

So, what’s the trouble with money?

There’s nothing wrong with it. It’s great and it’s essential, but you need a lot of it in order to deliver incremental performance. (We are not talking about base compensation and commissions here – we’re talking about over-the-top incentives, spiffs and promotions above and beyond the base plan.)

Financial rewards put people into a calculative mindset. They ask, “How much money is it? Is it a good deal for me to exert more effort, learn a new skill, work harder, etc.?” If it’s a lot of money, the answer is yes. But if it’s not, the answer is no and they’ll continue with the status quo and exhibit no behaviour change as a result of the “incentive”.

Outside of compensation, what are the best inducements to get maximum response and drive performance? What inspires them to perform?

This model was developed by Dr. Ran Kivetz, a professor at the Columbia Graduate School of Business to summarize what we continue to find in academic studies and program results: Inspirational awards, vs. cash and cash equivalents (debit cards, gift cards, etc.) are more effective at changing behaviour and driving results. The shift towards experiences and travel has been exponential over the past decade. According to a 2018 study by Expedia and the Centre for Generational Kinetics:

• 74% of North Americans prioritize experiences over products or things.
• The desire to travel is so powerful that 71% of Gen Z said they would get a part-time job to afford a trip and 49% of Gen Z and Millennials would sell their clothes or furniture to save money for a trip.

With people willing to go to those lengths for experiences and travel, the opportunity to engage them via inspirational kinds of reward and recognition is something all organizations should be looking to tap into as a means to grow their businesses.

The bottom line: More cash does not deliver commensurate incremental effort and performance. Experiences inspire action – and the type of performance that drives results.