Why Money Doesn't Motivate Executives

Last Updated May 25, 2011 11:50 AM EDT

Why Money Doesnt Motivate ExecutivesI'm sure you've heard the theory that compensation isn't the supreme motivator that everyone thinks it is - as suggested by BNET's Margaret Heffernan. Well, I'm going to take that a huge leap further and explain why it's not even one of the top ten factors for motivating and retaining executive talent.

First, let's talk about why this is such a big deal. Two examples:

  • Look at Hewlett-Packard. Four top-level executives have announced they're leaving the computer giant since the company's board, in all its dysfunctional wisdom, hired Leo Apotheker as CEO six months ago. Now the entire management team is scrambling to fill all the holes these departures create.
  • Yahoo reportedly lost more than a hundred executives when the board replaced Terry Semel with Jerry Yang as Yahoo's top executive. Who knew a company could even have that many executives, but that's got to be the most crippling talent drain in history. Yahoo never recovered and there's no telling how the story will unfold at H-P.
The problem is this: executive turnover is extremely costly and distracting for companies. Instead of focusing on the business - products, services, customers, competitors, markets - the remaining executives end up doing double duty and fighting organizational fires.

As long as gut-wrenching events like CEO transitions, mergers and acquisitions, and market transitions continue to be facts of corporate life, executive retention will continue to be a problem. But it's an even bigger problem when CEOs and boards think compensation is the solution when it isn't even in the ballpark.

According to author and Fortune 100 consultant Charles S. Jacobs:

It's been well established that such external motivators (compensation) decrease our internal motivation. Working for the carrot displaces the human need for purposeful achievement, and it comes at a huge cost--both in results and in satisfaction. When people are totally engaged in their work, the neurotransmitter dopamine is released, which sharpens focus and increases performance while creating a profound sense of wellbeing. We are motivated by the work itself, not the reward.
My own experience with gazillions of executives over the past thirty years is consistent with Jacobs's hypothesis. Of course they're somewhat motivated by compensation, but not in the way you'd think. It's more of a ticket to entry than a game changer. Their compensation must be consistent with their responsibilities, but it's rarely the primary reason for sticking around or jumping ship.

On the contrary, I think the vast majority of top executives would agree that these Top 10 Factors for Motivating and Retaining Executives are all more important than compensation:

  1. CEO leadership and vision. Every company's success is a function of the abilities of its CEO. That tide raises all boats, including all the executives and other stakeholders.
  2. Like what they're doing. It may sound simplistic, but why would executives be any different from anyone else? They're not. They want to enjoy what they're doing. You know those CEOs who periodically shuffle executive jobs? It's asinine, if you ask me.
  3. They're talents are needed. Again, it sounds too simple to be true, but I've heard it time and again that executives want to feel that their talents are needed for the company to be successful. They want to be an integral part of a success story.
  4. Stable organization. What do all major corporate transitions have in common? Upheaval and the fear, uncertainty, and doubt that go with it. Yahoo's continuous talent drain resulted from Yang's constant reorg-du-jour.
  5. Effective management team. The emphasis is on team and chemistry. Few things are more disturbing and distracting than dysfunctional management teams that are at each other's throats, usually because the CEO's a poor and ineffective leader.
  6. The company is executing. When a company's firing on all cylinders, everybody's happy. And if it isn't, it helps if all the management team is vested in a solid plan to get it back on track.
  7. The company is financially sound. While this is indeed related to compensation, it's more of a long term or security thing than a paycheck thing. Smart execs know their fortunes are tied to the company's. It's that simple.
  8. Growth path. With rare exception, executives are driven and motivated. That means they need a destination and a means to get there. They need room to grow and mentors to learn from or they're gone.
  9. Relationship with the boss. This is pretty straightforward. If an executive doesn't get along with the boss, if the chemistry isn't there, life is untenable, sometimes for both. That's an unstable situation that won't last long.
  10. They're challenged. Executives worth retaining don't want to just sit around and do the same old thing, day in, day out. They want to be challenged to be the best they can be. That's critical to their engagement and satisfaction. Must be the dopamine or endorphins or something like that.
Am I wrong? I'd love to hear from the executives out there. Also, too bad "money can't buy me love" didn't crack the top ten.

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