There was a recent article published in the Tulsa World that a new study “When Does Money Make Money More Important?” concludes that money from one’s work never loses its importance. If fact, it may become more important as one’s income rises. I believe this is true, but did we need a new study to determine that? In the late 60’s, one of my first bosses – an engineer from the rural Kansas farm belt – liked to say “Money isn’t everything, but it’s how we keep score!” When I first heard him say this, I thought maybe it referred to the measure of how our company was doing. It no doubt applies to company earnings, but I came to realize it can apply to individuals as well.
At the time I first heard him say that I was in graduate school part-time working on an MBA. I learned about Abraham Maslow and his well-respected “Theory of Human Motivation” which was published in the 1940s. Maslow identified a hierarchy of needs, beginning with “physiological” needs – the need for food and shelter to sustain life and progressing from there though social and self-esteem needs and finally to the need for “self-actualization”. His theory said that one moves through the lower level needs to the higher level needs. and a satisfied need is no longer a motivator. It is fairly clear that our economy requires monetary income at a level that enables one to have those needs met. Today, that would be about where the poverty line is established. But once the basic needs are met, social needs come into play and money should become less a motivator.
In the late 1950s and early 1960s came the work of Frederick Herzberg who talked of motivational factors and hygiene factors. Unlike Maslow, whose work seemed more scientifically theoretical, Herzberg was cited frequently in human resource departments and in business management articles. Herzberg said in corporations of the day that money was not a motivator, but a hygiene factor. In his concept, motivators were things that caused people to work harder. Included in this category were things like achievement and recognition. Hygiene factors were things that would cause dissatisfaction if the employee felt like they were not up to an acceptable standard. Otherwise they would not affect a person’s motivation. Salary (money) was in the hygiene category. So if an employee was satisfied with his salary, giving him more would not cause him to work harder. On the other hand if he found out that another employee was being paid more, he could become dissatisfied with his pay and might tend to “slack off”.
How to reconcile Herzberg’s theory with Maslow? My thought was that Herzberg was recognizing that most employee working for large corporations were making a wage or salary above the level that Maslow had as “basic needs” and so with the basic needs satisfied, money, per se’ would not be a motivator. Herzberg was saying “given that our employees are at a level above the point where money would be the primary motivator, what other things might corporate managers do to keep them motivated”. Employee relations departments in companies I was familiar with embraced these ideas. They put more effort into recognizing employees work achievements and embraced ideas like “empowerment” which would give employees more responsibility and say-so on how they did there work. They also made a rule forbidding employees to disclose their pay rate to fellow employees. In exempt, non-union jobs, no two employees were likely to be paid exactly the same salary. On the other hand they also established job ladders with salary ranges which would help maintain salary consistency between similar jobs both within and without the company. Employees were told about the approach the company was using to try ensure consistency of pay, but they weren’t necessarily told the salary range of their position. In my experience this worked well, except when an employee learned that he might be making less that his peers. If that happened, dissatisfaction would be evident. I believed Herzberg had a valid concept.
In the late 1970s and early 1980s baseball free-agency was established. Salaries of star players were often discovered and made public by newspaper reporters. In that time period there was a major league star player – a free agent – who told reporters he was holding out for the largest salary paid to any player in the sport. He had, at the time, a multi-million dollar offer which was reported to be the 2nd or 3rd highest in the game. A reporter asked him if he really needed more money. His response was that no, he didn’t really need more money, but he and others thought he was the best player in the game and if that were true, he should have the highest salary.
“Money isn’t everything, but it’s the way we keep score.”
A few years ago, I was having lunch with an old MBA school mate and we got on the subject of high corporate CEO pay. We both thought that it had gone too far. I had left the major company that I had worked for in the mid-1990s. At the time, the CEO’s pay had been tied to the same job and salary ladder as everyone else. He was obviously making more than anyone else, but it was stilled tied in a rational way to the rest of the structure. That tie seemingly had been severed. My friend thought the answer to this situation was additional disclosure. Which has happened since then. My argument was that the public disclosure was part of the problem. CEO’s probably aren’t much different from major league ball players in how they are motivated. If you believe you’re the best CEO in the industry, you should make the most money. It’s not that you need it, but it’s how we keep score. The study reported in our paper said that “found money” (e.g. money from winning the lottery) was not important. What is important is the money that we get from working. The motivation may be “achievement”, but the public measure of success at that is the amount one gets paid. So money is the score keeping system of how valuable others think their abilities are. Luck doesn’t count, our reward is recognition of how well we have done the things that really motivate us. Additional disclosure of CEO pay is not, by itself at least, going to solve the problem. In fact, it might help more to have less disclosure.
I believe that the reasons that CEO pay has risen as much as it has is not much different from the reasons college football coaches pay has also gone up rapidly. One reason is that 30 years ago, CEOs were mostly promoted from within. They were promoted from jobs on the established pay scale to the a senior job still on the pay scale. Today it seems, they mostly come from other CEO jobs with other companies. Likewise, we used to promote college assistant coaches to head coaches. Now – for the major universities a t least – we hire an all ready successful head coach from another college. I’m not sure what the fix for either one is, but additional disclosure is probably not the answer. There are some things I think that might help, but that’s a discussion for another day.