The Compensation Question – Which Is It?

A lot has been written recently about the idea of compensation as a driver of employee motivation – there seems to be evidence on both sides that money both is and is not the the thing people value most from their work experience.

The argument for is built upon survey tools and assessments in which employees at companies consistently list “Compensation” as a primary factor in a variety of opinions about work – satisfaction, engagement, retention, etc. The argument against is based on a growing body of evidence in social sciences, behavioral economics, and research from leading professional services companies that other factors – such as the intrinsic meaning of the work, the opportunities that the organization provides, and the lifestyle one leads in work and outside – are more important.

My view takes a bit of a different tack – I see both of these options as two sides of the same coin.

In his book Drive (which I’ve reference a few times as it’s simply the best summarization of the behavioral research on this topic), author Dan Pink describes the role of pay in this way:

Money is a motivator in the workplace, but in a strange way. If you don’t pay people enough, they won’t be motivated . . . the best use of money as a motivator is to pay people enough to take the issue of money off the table.

This would seem to be a strong piece of evidence for the “not” side of the argument. But when you take a look at the survey tools (for example, the survey tool referenced in the above HBR article ), you consistently see the question framed as “competitive compensation.” This word “competitive” is crucially important. Many people interpret this to mean that people find their compensation desirable. I don’t. What “competitive” means here, from an employee perspective, is to “take money off the table.”

If I’m a salesperson or marketing professional at Company X and I learn that they are paying me less than the market rate (compared to companies Y and Z if you have real data, or according to something like – suddenly money is back on the table. I’m not being paid for the value that I bring to the organization and now that’s the most important thing.

If a separate question were framed as “Desirable Compensation” – say defined as being paid in the top 10th or 20th percentile for people in your field, or say the top 10th percentile for income earners in your region or country – I think that on average people would rate that a much lower priority than some of the other factors people value less than many of the other factors, such as the work, the mission and the organization’s culture. (As an aside, I think there might be some organizations and industries where the “desirable compensation” figure is rated quite highly – financial services companies, for example).

Organizations who don’t pay competitive salaries are absolutely putting themselves at a disadvantage when it comes to hiring and keeping the best talent. However, organizations in this situation can positively impact their ability to attract and retain talent by taking a comprehensive view of the experience they over their people: their People Value Proposition. By strategically growing a different aspect of a people value proposition – offering more interesting, innovative work, a strong organizational culture or opportunities to grow for people to grow their skills – these organizations can compete for top talent that values their unique employee experience, even without the deepest pockets.

The Power of Purpose at Work

A few posts ago, we wrote about Dan Pink’s work in Drive and how Purpose is a key motivator for engaging people in cognitively skilled work (i.e. today’s knowledge workforce). In another popular TED talk by Dan Ariely, he dives deeper into the purpose motivator. You can see the full video embedded below (the full talk is about 20 min and amazing – relevant times are cited below):

Dan describes a series of behavioral experiments that he runs involving building Legos (3:06) and finding word pairs (9:54) and shows two key results that I feel are extremely important to highlight for organizations thinking about their People Experience and value proposition:

  • People involved in “meaningless” or “repetitive” work were (in the experiments) half as willing to engage in the activity as people whose work was more meaningful
  • Ignoring people’s work (or asking them to do something that won’t see the light of day) is, behaviorally, almost as bad as destroying it in front of them!

He also presents a case of a real-life example (7:45) in which a group of software engineers acknowledged feeling the exact same way when a major project they had worked on had been completely shelved.

This is extraordinarily important for organizations to understand when looking to attract and retain their top talent. When citing ways that the software company could have re-engaged their employees, they responded with a variety of good answers:

  • Allow them to present on the topic, to show the work done
  • Ask them to try and map the technologies created into other products in the company
  • Build future prototypes of how the product might have worked

If you look at these levers through the lens of a People Value Proposition, you can see that these engineers would have been motivated, rather than depressed, by an opportunity to use the work they had done to innovate new uses or to make an impact somewhere else in the company. By not providing work that gave the engineers an opportunity to have an impact on the organization, the company has stopped providing a people experience that the workers’ value and they run the risk of losing key talent.

Organizations that need skilled, intelligent, creative workers to succeed have a strategic need to figure out how to give those people an opportunity to have an impact, even if business conditions demand that a project or initiative be re-prioritized, shelved, or scrapped completely. Here are a few ideas on how to infuse purpose into your team’s daily work:

  • Identify your organization’s purpose – If you can’t answer the question of “why do we exist?”, figuring that out in a formal way is the first step to improving how your people connect with the organization as employees
  • Spend leadership time to communicate purpose – Whether you already understand your organization’s purpose or you have recently formulated it, leverage your leaders to communicate this purpose to the organization in an authentic way. Use stories to connect with people emotionally. Teach managers how to connect the lines between their direct reports’ work and the organization’s purpose
  • Help connect the dots – leaders in the organization should actively talk about what the work the team or individual means for their colleagues, the organization as a whole, or its clients. Giving people insight into the value of their work will help them better understand why it matters

Get ready for the real talent shortage

Talk to recruiting leaders at any company in the labor market looking to grow their organization’s team and you’re likely to hear about a major shortage of high-skill talent. The talent shortage has been written about at length (staffing and HR consulting firm the Manpower Group has in fact been publishing an annual survey on the topic for several years now  and the numbers look pretty grim for companies).

Well, if you thought it was a struggle to get talent today, it’s time to start investing in your people strategy now.

At a TEDx event this past fall organized by the Boston Consulting Group, senior partner Rainer Strack presented an analysis performed by the consultancy on changing labor dynamics as the baby boomers (whose birth rate topped out in 1964) hit age 65. Focused first on Germany, Strack shows how Germany the decreasing number of work-aged adults will hit an 8 million person gap if Germany wants to maintain it’s current level of growth. These 8 million missing workers represent roughly 20% of the current German labor market (click to see full-size graph):

german labor shortgage
Germany will have an 8 million worker shortage by 2030.


And Germany is not alone. None of the world’s top 15 largest economies (responsible for nearly 70% of global economic activity) will have future demographics shift in their favor (click to see full-size list).

labor shoratge 2030 by country
Labor shortage by country, 2020 vs. 2030

Given an overall labor shortage, the battle for highly skilled talent will be significantly higher stakes than even now. Organizations, even small and growing ones, need to start thinking now about their people strategy – how they are going to compete to attract and retain the largest source for their competitive advantage.

Developing an effective people strategy requires understanding the intrinsic and extrinsic factors that drive your people to come to work for you, from the first time they apply throughout their careers. These factors are embedded in the experience you provide your people – the unique and valuable experience you provide your people. Here are a few examples of the motivators that are embedded in your work experience:

Intrinsic: The organization’s mission or purpose; the challenge and sophistication of the work; the opportunity to make a difference for the organization or its clients; the ability to develop new skill sets

Extrinsic: Desirable compensation and benefits; Perks (social events, resources for personal projects, snacks, etc.); Formal training and development; Healthy work/life balance; a positive and unique culture

Companies like BCG understand how to provide these motivators as part of their experience (and as a result BCG is a top 5 rated employer by Glassdoor, above competitor McKinsey and Company, Facebook, Proctor and Gamble, and others) and they work with clients to assess, recommend and build stronger employee experiences. For startups and small businesses, my company WorkLifeValue provides assessment services to help growing companies figure out how to deliver a winning employee experience that secures them the talent they need to succeed, now and in the future.


The intrinsic value of work: Dan Pink & Drive

When it comes to explorations of how to motivate and engage workers doing skilled or technical work, there’s no better starting point than the work of Dan Pink. His book Drive is an excellent starting point for discussions of how organizations can unleash the creative potential of their people.

It’s no surprise that Pink’s TED Talk on the subject is one of the top 20 most watched talks (though I find the below RSA Animate interpretation of his talk to be a bit more comprehensive and entertaining, while still being shorter, clocking in around 11 min).

Pink’s argument, for those unfamiliar with it, is that the traditional business approach of rewarding talent through some combination of “Carrots & Sticks” – rewards packages and performance management for people who don’t perform – leads to lower performance for workers in the knowledge economy.

Instead, Pink finds that 3 intrinsic motivators drive success and creativity of these workers:

  • Autonomy – the ability to be self-directed in how you work
  • Mastery – the ability to develop and demonstrate achievement in your professional talents
  • Purpose – the belief that your work has meaning and impact to the internal organization, its clients, or even the world at large

In our work at WorkLifeValue, we fully see these motivators at play. A well-crafted People Value Proposition – the comprehensive and unique experience an organization offers its people – pulls on all of these levers. And an organization which successfully provides all 3:

  • Autonomy, in the life people lead inside work and out;
  • Mastery, through the growth opportunities and engaging challenges people experience;
  • Purpose, in providing meaningful and impactful work for their people to engage in everyday;

is going to see success in retaining and recruiting the talent the need to succeed.

And as for money, as Pink says, by providing the compensation and perks that people expect for their skills and “taking money off the table”, you keep them focused on creating, innovating and delivering value for the organization every moment of every day.