The Strategist

The main motivator

03/20/2015 - 16:24

Any parent can tell you that the surest way to turn a child's delight in fury is giving a child a candy, and then turn around and offer two candy to his sister. So great pleasure suddenly turns into a big insult: "Why does she have more? It's not fair! "And every personnel manager will tell you that there’s no much difference in business world.
- That is why MBA send lists of the average wage, and students spend hours studying these lists, - says Ian Larkin, associate professor at the Harvard Business School.

- You should have seen how many angry e-mails I get from students when they find out that his expected salary of $ 100,000 per year, as it turned out, below average. It is not that they really feel that the average annual salary of $ 115,000 is unfair to their own. They might be quite satisfied with their salary, if was not the information that it is below average.

And it's not just a question of money. Through his workplace researches, Larkin discovered that the most powerful motivator is our natural tendency to compare our own performance with the performance of colleagues.

Traditionally, economics has a very rational view of the people. There is a huge amount of literature focused on financial incentives, and on the fact that it is easy to get people to work harder with the help of them. But Larkin’s research shows that social comparison is equally important to how diligently we work, as well, as how well we think of their work.

Strength of social comparisons can lead to irrational financial decisions, according to Larkin, in his article ‘Paying $30,000 for a Gold Star: An Empirical Investigation into the Value of Peer Recognition’.

This article describes a fieldwork in a very large company providing enterprise software (SW). Salary sellers are largely based on commissions. The company also has another method of sales promotion - " President’s Club." Those employees, who have sold more than 90 percent of their peers in this year, get the membership of the club.

The company uses a "progressive commission" program for each fiscal quarter. The gist of it is this: if a seller fulfill a great sales plan at the beginning of the quarter, they will receive a higher commission from all future sales in this quarter. As a result, to get more commission, sellers can intentionally carry big deals that are necessary to implement the plan to beginning of the next quarter, what may adversely affect the sales volume at the end of the quarter, and especially at the end of the year.

Therefore, sales at the end of the year can help the seller to achieve special recognition as a member of the President's Club. Thus, the seller is faced to the choice: move the transaction at the beginning of next year and gain the ability to increase their commission or to make a sale before the end of the year and improve their chances of achieving membership in the exclusive club. Larkin’s report gathered real experience of hundreds of sellers facing this decision: large commission or club membership. The issue is the price of nearly $ 30,000 at the end of a year. Nevertheless, the Larkin’s study shows that sellers who are "on the threshold" of the club, in fact are willing to pay to cross through it.

It is important to note that there is no obvious financial benefits to achieve membership in the club. Club members get a gold star on your personalized card, corporate recognition, congratulations email from the CEO and a tourist trip for the weekend by the sea, along with other members of the club. Of course, the trip costs a few hundred dollars, but it is much less valuable than the potential commission of $ 30,000 next year.
Members of the club will not be promoted and will not receive higher commissions. Recognition in comparison with their peers is really all that they get. But many of them are willing to pay for it. As a result, the company saves $ 30,000 per year on each member of the club.

Social comparison can also lead to deception, according to Larkin in an article co-authored with his HBS’s colleague Benjamin Edelman: " Demographics, Career Concerns or Social Comparison: Who Games SSRN Download Counts?». The paper looks at near and dear to every scientist worldwide topic: the relative popularity of the working documents in the repository of scientific articles Social Science Research Network (SSRN).

SSRN is a vast repository of scientific papers, uniting more than 100,000 authors and 500,000 registered users, who have access to view or download any documents on this site. For each document, SSRN creates a web page containing the statistics of how many times the document has been downloaded and viewed. SSRN website also publishes a variety of "Top 10" in many areas, ranked by number of views, downloads or citation of documents.

Some scholars pay much attention to the popularity of his works. Larkin reports that a prominent scientist said about monitoring their work loaded, "It's like a drug for me."

Historically, SSRN allows unlimited access to downloading documents. Downloads are reflected on the web page of each article. It became apparent that many authors cheated, repeatedly uploading their work, thus creating the illusion for visitors that these works are the most popular. But SSRN has detailed statistics about downloading each document and is able to determine when the documents were loaded again and again by one person.

It's like a supermarket without a cashier, where each buyer can either steal goods or to leave the money, but there are hidden video cameras that monitor every step. Over the years, some scientists have successfully inflated their ratings, but authors and SSRN followed exactly who does it, and under what circumstances.

In his studies, Larkin and Edelman, together with the SSRN, tried to identify the causes that led scientists to cheat counters. Like real economists, they thought, "Well, perhaps it is newcomers who are just starting a career, or wrote the first serious work. They want their name to appear on the site." They thought on the traditional economic model: people do it for a rational reason, just to promote their careers.

Larkin shared this hypothesis with his colleague and Harvard mentor Max Bazerman. Max said, "I bet people do it because they are upset that their work load less than their counterparts’ papers." Larkin tested this hypothesis. It turned out Bazerman was right. The researchers found that the authors usually loaded their documents again, if their colleagues’ articles got in the rankings, or when new articles had come, being very similar and becoming very popular. False loads also increase in times when work is close to hit in (or, conversely, falling out) the top 10. Ironically, one of the most downloaded on SSRN works of all time is called "I have nothing to hide" and other misunderstandings about privacy. "

Again, surprisingly, in this case we have found little economic reasons. Of course, the main reason for this behavior was the fear of social inferior to their peers.
Consequences for managers’ wages

Examples from the world of software sales and scientific publications show that the company must take into account the social comparison in the development of programs of compensation. Payment of each employee solely in accordance with his personal capacity, in fact is an ineffective strategy. Such a system can lead to resentment or even sabotage on the part of other staff who feel that they are underpaid compared with colleagues. Thus, the standardized salary scale in conjunction with supporting incentive programs may be the best way to motivate employees. When deciding how much effort they must make to their work, staff pay attention not only to its salary, but also on its compliance with the salary of their peers, conducting social comparison.

This is an important food for thought, given that Facebook, LinkedIn and other similar sites have made a good habit to share information about his salary. It used to be that our salaries are a big secret, but the secret is gradually disappearing, thanks to social networks. People are very upset when they realize that someone of the same job gets much more. Companies should be aware that the information is distributed instantly today, having a negative impact not only on the feelings of individual employees, but also on the general psychological climate of the company. 

Original by Carmen Nobel and Ian. I. Larkin

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