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It’s time we accepted that more money does not mean better performance

Now here’s some irony for you. Co-chief executive of Deutsche Bank John Cryan recently said that bankers are paid too much for simply handling other people’s money. Seven years after the
financial meltdown, traders are still rewarded too quickly for profits that could evaporate, he told a conference in Frankfurt in December.

Cryan was even critical of his own high-level remuneration. And if that wasn’t enough his pious comments came just a few weeks after he had warned that staff bonus awards at his own firm must reflect the cost of fines for past misconduct.

Whatever you think about bankers and their capability to safely and responsibly manage our money, Mr Cryan does, probably unwittingly, make a sound observation about the link between the level of pay and the level of intrinsic motivation it generates.

Pay for work, of course, needs to be fair and ideally provide us with an income that supports a decent lifestyle, which is clearly subjective. Research by Gallup and psychologist Daniel Kahneman, currently puts this at approximately £50,000 a year – apparently over this amount no additional happiness is achieved.

The research also found that for people who earned more than this and said they were “happier”, their income wasn’t the reason. It was instead related to other factors that rewarded them intrinsically. To put it in context, would a footballer stop playing if the ridiculous salaries were removed?

Behavioural economist Dan Ariely has also studied the effect of pay on performance. In one experiment he gave study participants a piece of paper filled with random letters, and asked them to find pairs of identical letters. As the study progressed through each round, they were offered less money than in the previous round.

People in the first group wrote their names on their sheets and handed them to the experimenter, who looked it over and said “uh huh” before putting it in a pile. People in the second group didn’t write down their names, and the experimenter put their sheets in a pile without looking at them. People in the third group had their work shredded immediately upon completion.

People whose work was shredded needed twice as much money as those whose work was acknowledged in order to keep doing the task. People in the second group, whose work was saved but ignored, needed almost as much money as those whose work was shredded. Acknowledging effort is just one of the intrinsic drivers for motivation that supersedes pay.

Ariely’s work shows that whilst bankers tend to argue that bonuses motivate and ensure superior performance from superior talent, research suggests that dangling exorbitant amounts of money in front of workers doesn’t improve performance, in fact if anything it negatively affects it.

He along with colleagues conducted experiments in America and India showing how bonuses reduced performance when cognitive skills were required to carry out tasks. Bonuses worked well on the other hand for only routine mechanical tasks. I’d like to think that our bankers do employ cognitive skill, but perhaps based on the results of the past few years it’s questionable.

Astronomical compensation can be seen in other industries as well and whilst the debate can continue on what is right and ethical, ultimately we have the knowledge now about what really motivates us over and above a fair wage, and we need to start to leverage this in the workplace today.