There are two things that organizations traditionally use to make their people happy, but which simply do not work, and which may even be harmful:
- Salary, raises, bonuses
- Corporate status symbols and rewards
As long as companies look to these two things to make people happy at work, we will get nowhere. And make no mistake: Businesses use enormous amounts of money, time and effort trying to fairly apportion money and rewards.
There’s one more thing that just doesn’t make people happy at work, but which employees and trade unions oftgen cling to it: Job security.
Let’s look at why money, rewards and job security don’t make people happy.
Why the salary does not make people happy
In 2004 IKEA in Denmark did something completely unexpected. They decided without negotiations or union pressure of any kind to give their entire check-out staff a 25% raise. A typical salary of 16.000 DKK (aprox. 2.500 USD) suddenly became 20.000 DKK (approx. 3.100 USD).
Was this expensive? Sure. While cashiers aren’t highly paid, IKEA has more of them, than of any other group of employees. We’re talking a sizable raise in total monthly payroll expenses.
So why did they do it? Because it made the check-out staff happy – and IKEA knows that happy employees create results. Fantastic results.
Let’s immediately turn around and contradict that story: A high salary does not make people happy at work. Neither does a raise, a bonus, a prize or any other kind of financial reward.
What happens when a person gets a raise, is a brief spike in happiness at work, but it quickly settles back to it’s previou level.
When IKEA initiated the 25% raise for its check-out staff, they expected results in return. They didn’t do this out of the kindness of their hearts, it was very much a business decision. And they got results:
- Lower employee turnover – meaning time and money saved on recruiting new staff
- More experienced staff – when people stay longer, they grow more experienced and better at their jobs
- Higher customer satisfaction – because of the experienced and happy staff
- Higher quality / fewer errors – because of the experienced and happy staff
IKEA found that the raise paid for itself within six months!
So if I’m claiming that a raise doesn’t make people happy at work, then why did it work for IKEA? For two reasons:
- This group of employees were the least well paid in IKEA. This means that a 25% raise made a palpable difference for their quality of life.
- Recognition. IKEA clearly stated that the reason they got the raise was, that they are the most important group of employees. Though sales staff is available inside IKEA’s stores, the reasoning went, most customers help themselves, meaning that the only IKEA staff member they will ever talk to, is sitting at the cash register. This made the check-out staff feel valued and trusted – and that made them happy.
- Fairness. Psychological business studies show, that people don’t judge their salary based on the absolute figure but by comparing it to their colleagues, peers and the market average. Which reminds me of the New Yorker Magazine cartoon where an employee is turned down for a raise and then asks “Well, if you can’t give me a raise, could you at least give Peterson a pay cut?”. The checkout staff were suddenly paid as well as other IKEA employees, and far above the market average.
You need more proof? Irma, the grocery chain mentioned in a previous chapter, is the fifth best workplace and the best retailer to work for in Europe and their salaries are market average – no more. If salary is so important, how is that possible?
The truth is this:
The salary is what makes it possible for people to show up at work every day. It has no effect on how happy or how productive they are.
Lofty titles, a larger desk, company cars, the key to the executive rest room and other status symbols don’t make people happy at work either
Alfie Kohn, the author of the provocative and excellent book “Punished by rewards???, has this to say:
The idea that dangling money and other goodies in front of people will “motivate” them to work harder is the conventional wisdom in our society, and particularly among compensation specialists.
…rewards are not merely ineffective but actually counterproductive. Subjects offered an incentive for doing a task (or, in some of the studies, for doing it well) actually did lower quality work than subjects offered no reward at all. As University of Texas psychologist Janet Spence put it after discovering this surprising effect in an early study of her own, rewards “have effects that interfere with performance in ways that we are only beginning to understand.”
Kohn’s book may be one of the meticulously researched business books ever, collecting the results of hundreds of psychological studies. But then it has to be, because Kohn’s message is so much at odds with the way businesses traditionally motivate employees, which is mostly by throwing money and rewards at them.
Kohn’s research found that rewarding people reduces productivity and quality. This seems counter-intuitive at first, but Kohn’s explanation is simple: Every time you reward people for doing something, you motivate them externally, an act which inevitably reduces people’s inner motivation. And only inner motivation, ie. people truly wanting to do a good job, is any guarantee of quality and performance in the long term.
It’s funny to think, that businesses and leaders struggle to motivate people, and the way we often use bonuses and rewards actively works against this intention.
So if rewards don’t work, what should a business do instead? Kohn’s advice would be to do everything possible to take employees’ minds off the rewards, and that incentives, bonuses, pay-for-performance plans, and other reward systems violate the last principle by their very nature.
The fair distribution of rewards and status symbols can take up significant amounts of time and effort in an organization, but they actually have a negative long-term effect on employees’ happiness and on organizational performance. Not zero effect – negative effect!
The vast majority of businesses use raises and other rewards to drive behavior and to make people happy at work.
It doesn’t work! In many cases, it’s counter-productive.
I work in the government sector in Denmark as a tjenestemand, a type of position which makes you virtually immune to being fired. No matter how incompetent or obnoxious I get, I can’t be fired without a huge hassle for my government department. Though the public sector is moving away from hiring people on these terms, many people still have them. No matter what they do, they won’t lose their jobs. It’s the ultimate job security.
People end up stuck in a rut. Their world gets smaller and smaller, their focus gets more and more narrow. They also resist any and all change, no matter how small or how innocent. I hate to say this, but in many cases I really feel that firing that person would actually help him, because it would force him or her to move on.
In studies that ask people what makes them happy at work, job security often figures high on the list. Rarely at the top, but always in the top 10.
It’s obvious that spending each work day in fear of being fired will make you desperately unhappy. But the kind of job security where you’re almost certain to hang on to your job no matter what happens, is also bad for people’s happiness at work.
Rosenbluth International faced this very dilemma. As described earlier, they’d decided to put their people first. Here’s the interesting question: If you have put your people first, how can you ever fire any of them?
CEO Hal Rosenbluth had an elegant answer: Putting your people first entails a responsibility to fire people who don’t fit in. Not at the first sign of trouble, obviously, you start by trying to help the employee. Training, coaching, guidance. Maybe a new position inside the company.
But when these things don’t work, a commitment to your employees’ happiness means precisely that you have to fire employees that simply don’t fit in. And that’s why unrestricted job security will actively make an organization a less happy place to work. Because when people stay on at jobs where they really don’t fit in you get:
- Lower performance
- Higher workloads
- More conflict
Allowing an employee to stay in a job that doesn’t make that employee happy is not only bad for the employee, but for everyone around that person, because of the lower performance and because unhappiness at work is contagious.
(Graph of happiness at work as a function of job security)
So to sum this up: Too little job security makes us unhappy at work. It leads to fear, avoidance of conflicts and stress.
But too much job security is also bad, because it leads to passivity, cynicism and resistance to change.