Employee Motivation and Lean Implementation – Part 2: Money

Lean improvements often fail in implementation, meaning the employees do not follow the new standards. In my last post we already saw that pressure (“the stick”) doesn’t work very well. The second option is the carrot. In this post I will show different “carrots” that are sometimes used to get employees to follow the new standard. However, most of them won’t work very well either. What often works best is actually simply treating people with respect – but I will talk about this in my next post.

Money, Money, Money …

Often, money is seen as the biggest motivator of them all. Give people cash, and they will work better and more. There is a bit of truth in it. Very few of us would work for free, and if our jobs would have no salary, we would probably be searching for a new one sooner rather than later. However, using money to actually change the behavior of the employees is very difficult.

How Much Money for Happiness

One rule of salaries is that it is never enough. Surveys asked people about the salary they would like to get, and the answer is pretty consistent: 10% more! Just 10% more salary, and they would be happy. This is regardless of the salary level. A fast food worker earning $20,000 per year (one of the lowest-paying jobs in the US) believes he merely needs 10% more for happiness, as does an  anesthesiologist making $270,000 per year (the highest-paying job category in the US) (Complete list of jobs here), or even CEOs earning millions per year. All of them believe that they would need only 10% more money to achieve satisfaction and happiness.

Oh well, 10% more labor expenses is a lot, but to achieve a truly happy workforce that may be considered. Unfortunately, there is a second set of research that shows that this motivational effect from a raise lasts, on average, only three months before the higher salary is now seen as the new normal. If you would pay your people 10% more, they would be happy for three months, then they would start dreaming again about 10% more. In effect you would need to raise the salary by 10% every three months. This would be 46% more money every year, doubling the salary in less than two years. Clearly this is not sustainable.

Performance-Related Pay

Another option is performance-related payment. Work hard and get paid more. This is common in industry but also has its flaws. First of all, how do you measure performance? It is hard to have a measurable metric. Usain Bolt’s performance can be measured easily based on how long he needs for 100 meters. But if your job does not consist of running 100 meters, it will be more difficult to measure performance.

For shop floor workers it may be possible to measure the number of pieces produced and to pay accordingly. But this is also flawed. First of all, the quantity produced rarely depends on the worker alone, but also on other factors like material availability, machine reliability, and so on, which the worker cannot influence directly.

Historically, payment per piece was tried, but the managers soon found out that the worker produced large quantities at low quality. In order to maximize his profit, the worker was prioritizing quantity over quality, and many of the produced parts were actually low quality or defective.

Nowadays it is more common to actually cap the performance-related pay at a certain level. Often, this is at 130% of the target performance. Since the worker is not rewarded more for excessive speeds, quality will (hopefully) not degrade.

On a curious side note, for all such systems that I have encountered, the workers were able to work 130% consistently and without breaking a sweat. In effect, 130% was the norm, and the worker was punished if he fell below the 130% mark. I wrote a whole blog post on the psychological tricks going on with this: The Curious Case of 100% Work Performance.

Hence, with limitations it may be feasible to get more parts with more money, but it will be very hard to influence how these parts are made. If you pay by piece, you pay for the outcome, not for the following of a standard while making them. Achieving this with money will be very difficult.

Measuring performance will be even more difficult for indirect workers (office, admin, managers, and so on). While most companies try their best to make the performance evaluation as unbiased and measurable as possible, the results are often unsatisfactory. If you have ever received or given such a performance evaluation that influenced the bonus, you know how awkward these measures are, how little the worker can actually influence them, and how both sides (probably) feel that this is more of an ritual or dog-and-pony show than an actual evaluation.

And besides, similar to the desired 10% more salary above, this bonus is now expected and no longer motivational. On a side note: The higher up you are in the pay grade, the more you are able to negotiate getting your bonus regardless of your performance. There are countless CEOs that underperform but still are able to get the lion’s share of their bonus despite the metric goals (e.g., stock market performance) that were set out initially.

Non-Monetary Goods

There is one way that can to a certain degree avoid the trap of a bonus being “normal” after three months. You would have to keep the bonus somewhat separate from the regular pay. Think of your salary as a bathtub full of water. You don’t really notice an additional pitcher to your monthly bathtub.

However, if you keep the pitcher separate from the rest of the tub, it will be more visible. Therefore, it may in some cases be better to give rewards not in the form of money that is transferred to the bank account and “no longer visible,” but in some separate way. This could be gas vouchers, pizza coupons, gift cards, or other items that are not just money.

To use the reward, the employee has to handle it separately from the rest of the salary. This can vastly extend the duration of the “motivation” above the three months for mere money. Additionally, depending on your jurisdiction, such rewards can sometimes be given tax free. And at least we Germans love to get things tax free!

But be aware that any such events can also horribly backfire. There are countless examples of motivational activities and offices or even company-wide events that horribly backfired. See my post Using Lots of Effort and Money to Demotivate Your People for a selection of ill-thought-out examples, including some cringe-worthy videos.

Never Ever Reduce Salary!

In any case, whatever you do, never ever reduce the salary to nudge people toward doing what you want them to do. While additional money has only a short-term motivational effect, reducing money has a much, much stronger negative effect. If you cut the salary even by one dollar per year, the employee will be pissed for months and years to come. From the view of the employee, he has the right to his salary, and reducing it amounts (from his point of view) to stealing.

In academia, this is the so-called two-factor theory by Frederick Herzberg (1923–2000). He groups job satisfaction effects in two groups. The first one is called hygiene factors, and money is one of them. Having it does not really increase satisfaction very much, but reducing it will be extremely upsetting to the worker. Other hygiene factors are job status or prestige, job security, work conditions, vacation, and so on. Hence, you need them for your employees to be “not unhappy,” but they will not make them happy either.

The second group actually motivates, and hence they are called motivators. And they have nothing to do with money, but everything to do with leadership and respect for people. Especially this respect for people is a very important aspect of the Toyota Production System, but unfortunately it all too often falls short in what we call lean nowadays. This is such a big topic that I will discuss respect in more detail in my next post.  Until then, go out, respect your own and other people, and organize your industry!

P.S.: This series of posts is based on a question by Curtis Rosché (name mentioned with permission).