Intrinsic vs. Extrinsic Motivation in Financial Services

Introduction: Motivation and HR Performance in Financial Services

Many HR performance issues stem from underlying motivational problems within the external work environment. As Clark (2010) observed, "Often an employee knows how to perform correctly, the process is good, and all resources are available, but for one reason or another, chooses not to do so, which normally means it is a motivational issue." In the past, during the era of scientific management, motivational issues were addressed by rigorously governing employee movement in a strict and controlled fashion. However, this approach can stifle employee creativity and enthusiasm for the task.

The most obvious motivator for most people to work is money. In the financial services industry, money is a major motivator in terms of how salary and compensation are structured. The expectation of a large Christmas bonus is designed to encourage workers to perform at a high level throughout the year. At some firms, 60% of the overall salary of financial workers is derived solely from bonuses (Pauly, 2009). However, this externally focused method of motivation has come under a great deal of criticism. This paper uses the theory of external versus internal motivation in financial services to examine whether different motivational factors could create greater financial stability in the world economy and a less short-term-focused workplace culture, drawing on examples of intrinsic motivators used in other industries.

The Bonus Culture and Short-Term Thinking

Short-term thinking on the part of employees who are eager to take high-payoff risks — driven by the extreme importance placed on bonuses — has been blamed for at least some of the problems that caused the credit crisis of 2008. In the workplace culture of financial services, the size of a bonus takes on additional significance in the eyes of workers, making it even more meaningful than any real monetary value it might possess.

With this in mind, Wall Street and the financial services industry in general began to curtail the use of bonuses to motivate employees, in an effort to encourage more long-term thinking and reduce investment in high-risk ventures. As Pauly (2009) argued, "The time-honored bonus culture featuring large cash payments needed to end." For example, Goldman Sachs rewarded its 30 top executives with stock instead of cash in 2009, to encourage them to focus on the long-term health of the firm rather than turning a quick profit to capitalize on momentary spikes in firm value. The stock could not be sold for five years, and executives "might lose the shares if Goldman determines later that the executives earned them by taking heedless risks" (Pauly, 2009).

The Limits of External Motivation

Relying upon salaries alone to motivate workers presents another problem: except on Wall Street, there is usually a limit to how much money a company can spend. External sources of motivation only go so far; eventually, a company must rely more heavily upon internal sources of motivation. With this in mind, some employers in other industries have offered different types of incentives to encourage worker performance, such as greater flexibility in working hours or greater autonomy in choosing projects.

Intrinsic Motivation in Practice: Best Buy and Google

One prominent example is Best Buy's Results Only Work Environment (ROWE), in which workers are judged solely according to the results they produce rather than the hours they keep. Employees are not required to be at company headquarters for a standard 9-to-5 shift. Best Buy previously graded workers based on "face time" — how much time employees spent at their desks. Allowing workers to telecommute, arrive late, leave early, or schedule personal time around family commitments resulted in a more productive workplace. Workers became happier and more motivated to remain at Best Buy because the arrangement enabled a more effective work-life balance. As Hollon (2011) explained, "ROWE redirected the focus of employees and managers towards measurable results and away from a set work schedule and location. Employees could routinely change when and where they worked without seeking permission from a manager or even notifying one." ROWE reduced turnover by 45% at the company. Workers were more committed to staying at an organization that showed genuine concern for their welfare and interest in their performance, and they were no longer doing busywork simply for the sake of looking busy — an outcome that improved overall company productivity.

Another company that has successfully employed intrinsic rather than extrinsic motivators is Google. Google allows its engineers to spend 20% of their time working on company-related personal projects of their choosing. As Mediratta (2007) noted, "It sounds obvious, but people work better when they're involved in something they're passionate about, and many cool technologies have their origins in 20% time, including Gmail, Google News and even the Google shuttle buses that bring people to work at the company's headquarters in Mountain View, Calif." Workers are, in effect, compensated in the currency of personal fulfillment — the pleasure of pursuing something that genuinely interests them. Rather than simply offering salary increases tied to project profitability, Google motivates workers by allowing them to engage with ideas that arouse their passion. For sweeping organizational changes, Google encourages employees to form "grouplets" — described as "a bunch of people who are committed to an idea and willing to work to convince the rest of the company to adopt it" (Mediratta, 2007). Committed and motivated workers can thus band together to drive change, and management actively encourages them to do so.

It should be noted that one reason Google and Best Buy are so successful with these approaches is their ability to select employees who are a good fit for their corporate cultures. Both companies are grounded in the need for innovative thinking, and employees who are strongly intrinsically motivated by the desire to produce high-quality work for its own sake are more likely to thrive in these environments than employees who view work primarily as a means to a paycheck.

The Best Buy and Google examples demonstrate that intrinsic models of motivation can be extremely effective in certain workplaces. However, it remains an open question whether they can be effective in all workplaces. As Hollon (2011) cautioned, "Any situation where timing at your place of business is an issue is going to be unfriendly to a true ROWE implementation." A small organization might also lack the human resources to allow engineers to engage in open-ended personal projects given the demands of day-to-day operations. Nevertheless, it is still possible to incorporate other forms of intrinsic motivation — such as fostering a sense of community and fun through social activities, creating generous leave and benefits plans to support work-life balance, and investing in employees' professional development through continuing education. This type of intrinsic motivation generates employee loyalty and fosters a meaningful relationship between employer and employee.

Conclusion

The lessons drawn from Best Buy and Google suggest that intrinsic motivators — autonomy, passion-driven work, and meaningful flexibility — can drive productivity and loyalty more sustainably than cash incentives alone. While the culture and talent pipeline of financial services present distinct challenges, the broader principle holds: external rewards alone create short-term behavior. Through changing its motivational structure by deemphasizing end-of-year cash bonuses and investing in internal sources of employee satisfaction, the financial industry can work toward creating a more stable financial future for itself and for the global economy.

References

Clark, D. (2010). Motivation and performance. Big Dog Little Dog. Retrieved from http://www.nwlink.com/~donclark/performance/motivation.html

Hollon, J. (2011). Weekly wrap: Best Buy and ROWE — Yes, flex work works, at least for them. TLNT. Retrieved from

Mediratta, B. (2007). The Google way: Give engineers room. The New York Times. Retrieved from http://www.nytimes.com/2007/10/21/jobs/21pre.html

Pauly, D. (2009). Wall Street's bonus culture: RIP. Businessweek. Retrieved from http://www.businessweek.com/investor/content/dec2009/pi20091214_441647.htm

Price, M. (2012). Getting to grips with finance's cultural problems. E-Financial News. Retrieved from http://www.efinancialnews.com/story/2012-08-13/getting-to-grips-with-finance-culture-problems