Reward and Motivation in a ‘Post-Bonus’ world

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Tactical cuts so far - a new strategy is needed

To date, it hasn’t been the public opprobrium or even the political pressure that has resulted in sharp cuts to bonuses in the City. It’s economic necessity – reducing the cost base to stay profitable, rebuild equity capital and deal with continuing tough trading conditions and regulatory demands. These are tactical cost-cutting measures so far, but the economic factors driving them aren’t going to change in a hurry. The game has changed and the votes of angry shareholders are starting to count – we may now be in a ‘post-bonus culture’ and a new reward strategy for attracting, retaining, engaging and motivating the talented people needed for the future is required.

When it was just left-wingers, ‘occupiers’, righteous politicians and the odd blogger (see link below) kicking up a fuss, the hubris of the City institutions and other business executives responsible for awarding themselves such prizes seemed undimmed. But now we’re in an environment where everyone is having to take their austerity medicine, and some are gagging on that and hitting back. This is causing increasing political instability across Europe and the rise of extreme or protest voting. Our politicians are sensitive to this. The medicine will still have to be taken but greed will also be hunted down. To repeat, a new reward strategy is required.

Euro protest

Greece, Italy, Spain.. France, The Netherlands..?

John Plender (Financial Times, 21st April), says that investment banking is now “a mature industry that … pays entrepreneurial rewards for erratic and mediocre performance”. The paper also reports, for example, that Goldman Sachs’s Q1 results show revenues and profits very similar to Q1 2006 (Lex, 18th April), highlighting that maturity, despite all the brilliance and hard work of its people (and their huge rewards). How long might its own investment arm tolerate a company which showed no growth over six years whilst rewarding its people like kings? The FT also reports on Citigroup’s shareholder rebellion on their CEO Vikram Pandit’s pay package, and the pressure also being put on Barclays to keep its payments to Bob Diamond in check – we await the outcome of today’s AGM with bated breath.


Executive pay at Himalayan heights

The chorus is growing. Most recently Andrew Haldane, a member of the Bank of England’s Financial Policy Committee, said: “while bank performance has fallen off a cliff, executive pay remains close to pre-crisis Himalayan heights”, urging reconsideration of the way bankers are paid. And Henry Mintzberg, the renowned academic and thought leader on management and strategy, was quoted recently (The Globe and Mail, September 2011) as saying: “I defy anybody to measure the effect of a single individual, or few individuals, on the overall financial performance of a company”, adding that “we are seized by this sense of greed and narcissism”, and that “companies are communities”. Now here’s a clue for a different strategy.

It has been well researched and documented over the years (Maslow, Herzberg, McClelland and others, most recently Daniel Pink) that the underlying powerful motivating factors for people are the ‘intangibles’ of: the working environment (including behavioural culture); learning and development; a sense of progress, purpose, opportunity and achievement along with trust, recognition and responsibility. Successful communities and organisations like Google, Amazon, Accenture and Goldman Sachs (as I experienced it in the late ‘90s) offer these factors. Cash has been shown to be a surprisingly poor motivator beyond the short term, over and above what’s ‘necessary’ and/or what’s relative. Which is why if your chosen strategy to motivate people is with ever larger amounts of cash, you’ll always be worried that they’ll move to the competitors as soon as the music stops.

Motivation factors

Most motivating factors are not financial

And this perhaps explains the apparent resistance to change which has been evident since the tectonic shift of 2008. Following Kegan and Lahey’s ‘Immunity to Change’ model, such resistance doesn’t necessarily reflect outright opposition, but could rather represent blockage from competing commitments – in this case the fear of losing their primary resource and potential source of differentiation, ie talented people in the organisation. So, in order to bring about significant and sustainable change to the whole system, there needs to be leadership from specific organisations to change the orthodoxy and burst the ‘fear factor’ bubble. For example, F&C last week spoke out about ‘high levels of compensation which are not sustainable’ – and others will surely follow suit as they realise they are now quite definitely in a ‘buyers market’ for talent.

Reward strategies always need to fit well with organisational strategy and desired culture and can be a powerful tool to drive change in behaviour and values to reflect a different operating environment, and differentiate the business from its competition. Total reward (according to Armstrong and Brown) includes both remuneration – pay, bonus, pension – and also the intangible benefits identified above.

Which City firms will be the bold leaders in looking to motivate their human resources more imaginatively, creating a different kind of business community to match the new environment? The old masters, or a new generation?


John Plender, Financial Times

Lex, FT

Barclays AGM, FT

Andrew Haldane as reported in the Telegraph

Henry Mintzberg in The Globe and Mail

Lloyd Blankfein answers the critics

Wiki on  Frederick Herzberg’s Motivation and Hygeine factor theory and McClelland’s Need theory

RSAnimate take on Daniel Pink’s Drive

And a blog from three years ago

"which City firms will be the bold leaders in looking to motivate their human resources more imaginatively, creating a different kind of business community to match the new environment?"

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