Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives. Dan Richards

Many advisors struggle with staff members who regularly fall short in terms of work ethic, attention to detail or ownership of outcomes.   Getting the most out of your team is essential, and a new book illuminates an effective way to build motivation in your organization.

Often, the gut response when dealing with these issues is to focus on compensation – to change the mix of fixed versus variable pay or make bonuses more directly tied to goals.

Sometimes tweaking compensation works, but more often it fails. Occasionally the problem is that you simply have the wrong people.  But a recent book suggests another explanation: You are using a long outdated approach to motivate your people rather than one aligned with today’s reality.

Why carrots and sticks don’t work

The backbone of managing employees since the Industrial Revolution has been based on carrots and sticks – historically, the key to success was seen as rewarding the right behavior and punishing the wrong behavior.

Psychologists refer to compensation as an external motivator – it motivates us from the outside rather than from the inside. Research shows that external motivators work – but only in a surprisingly limited range of circumstances.

In his book, Drive: The Surprising Truth about what Motivates Us, author Dan Pink describes experiments on the impact of incentives.

A group of students were given three levels of rewards to complete some tasks.

As long as the tasks were rudimentary and mechanical, the outcome was what you’d expect – the higher the incentive, the more productive the students.

When these tasks involved conceptual, more complex thinking, however, unexpected results occurred. Not only did the higher incentives no longer produce better performance, but in some situations, they led to worse outcomes.

Money matters – but to be productive people need to be paid fairly. Once you’re at that threshold of fair compensation, for most people the incremental payoff from higher pay rapidly diminishes. Once people feel that they’re fairly paid, Pink maintains that three other factors drive outstanding motivation and performance – all linked to internal or intrinsic motivation rather than external motivators.