The great military and political leader of France, Napoleon Bonaparte, was quoted as saying, “A soldier will fight long and hard for a bit of coloured ribbon.”

In more recent times, the Corporate Leadership Council identified that fair and accurate informal positive feedback from a knowledgeable source (such as a person’s immediate manager) is the single most effective performance management lever available.

A recent McKinsey & Company research study, titled, “Motivating people: Getting beyond money”, has found what Bonaparte and the Corporate Leadership Council discovered to be true still holds water. That positive leadership attention, along with praise and commendation from a person’s immediate manager, are the most effective motivators available in any organisation. In fact, McKinsey has found that they outperform financial incentives.

Based on a global survey of executives, managers and employees from a range of sectors, 67% of respondents rated ‘praise and commendation from immediate manager’ as an effective motivator, 63% rated ‘attention from leaders’ as effective, and 62% rated ‘opportunities to lead projects or task forces’ as effective.

By contrast, 60% of respondents rated ‘performance-based cash bonuses’ as an effective motivator, 52% rated ‘increase in base pay’ as effective, and 35% rated ‘stock or stock options’ as effective.

However, by far the most frequently used approach to motivate employees has been ‘performance-based cash bonuses’ and ‘increase in base pay’ according to those same respondents.

In the current economic climate there couldn’t be a better time for organisations to develop more cost-effective approaches. Money’s traditional role as the dominant motivator is under pressure from declining revenues and budget cutting, and it turns out there are more effective and cheaper alternatives.

Yet the same survey discovered that not only is the overall reliance on financial incentives dropping, so is the use of non-financial incentives.

Why haven’t many organisations made more use of cost-effective non-financial motivators at a time when cash is hard to find? McKinsey suggests that one reason may be that many executives hesitate to challenge the traditional managerial wisdom that money is what really counts – they still think that bonuses are the dominant incentive for most people.

Another reason is that non-financial ways to motivate people require more time and commitment from managers. McKinsey quotes an HR director who spoke of the tendency of managers to ‘hide’ in their offices. This lack of interaction between managers and their people saps employee motivation and engagement.

While financial rewards have an important role to play, both senior leaders and managers  would do well to take a more interpersonal and effective approach to motivating, engaging and inspiring their people.

Image by John Hughes