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In the months after September 11, as business activity slowed to a crawl, Steve Kerr, then the chief learning officer at Goldman Sachs (GS), launched a leadership seminar for senior managers that he nicknamed "Motivating Without Money." The daylong sessionsdiscussed how Goldman's managers could use nonfinancial incentives to energize their staff. While well received, the seminar was discontinued when business perked up again a year or so later.
Last fall, however, Goldman brought it back, widening the audience to include Goldman's clients. (It's now called "Motivating Your People in a Challenging Environment.") "We got more people than I expected," recalls Kerr, now a senior advisor to the bank and author of a new book, Reward Systems. As for why bonus-obsessed Wall Street hotshots would be so receptive to his "money isn't everything" message, Kerr says: "I guess any reward in tough times is valuable."
He's got that right. These days, with layoffs rampant and companies slashing budgets across the board to weather the economic downturn, motivating employees to bring their "A" game to the office every day is harder than ever. According to a survey of nearly 80,000 employees by the Corporate Executive Board, one in every five employees now consider themselves disengaged from their job, compared with one out of ten last summer. What's more, two out of three companies surveyed in late 2008 by market research firm Quantum Workplace had lower overall employee engagement scores compared with a year earlier.
Some managers may feel that unmotivated employees are not a huge problem. After all, where are they going to go in this crummy job market? But such an attitude is short-sighted, says Jeff Summer, who leads the U.S. talent management practice at PricewaterhouseCoopers (PWC). "[The best] employees are still in high demand, so if their organization is not motivating them, they're moving," he says. The challenge, then, is not only to get them to stay, but to shine.
Summers recounts a recent call from a client in the technology industry. The company had conducted a layoff, and soon afterward it lost three employees it had wanted to keep because managers, absorbed in the layoff process, did not effectively communicate to those who remained how they would move forward. "When you lay people off in a recession, those who are left behind have to be more engaged than ever to pull you out of it," says Chester Elton, co-author of The Carrot Principle, which details how companies like PepsiCo (PEP) and Quest Diagnostics (DGX) use formal recognition programs to keep employees engaged.
At times like this, remember that "CEO" does not stand for chief engagement officer. He or she is too busy figuring out how to keep the company afloat to do much more than transmit a companywide e-mail or Webcast. The responsibility for this falls upon middle managers, whose words and behaviors, studies show, have the most impact on employee engagement (or disengagement.) "Creating a resilient workplace that can deal with trauma and come out engaged on the other end is not a senior executive's role," says Tom Davenport, a principal at Towers Perrin. "It's a line manager's job."
"What matters is understanding what matters to them," adds Summers. "It's almost like you have to re-recruit your talent."
But how? First, managers must be motivated themselves. Body language is the key here—employees won't believe your inspirational missives if you hide in the office all day. "How can you motivate your troops when you're down in the dumps?" asks Joan Caruso, an organizational effectiveness consultant with the Ayers Group of New York who works with banks like Goldman Sachs. "We live in an age of e-mail, and it's easy for managers to hide behind that," says Steve Church, chief operational excellence officer at Avnet, a technology distributor based in Phoenix. "But employees need to hear from us in person."
As far as what to say, money still talks—at least for companies in a position to dole it out. Both Google (GOOG) and Starbucks (SBUX) have instituted option-exchange programs where employees can trade out-of-the-money stock options for fresh new ones. But such option exchanges "are a sticky issue," says David Wise, a senior consultant and compensation expert at consultancy Hay Group. They can arouse the ire of shareholders, who aren't included in the offer.
Software developer Intuit (INTU) had a different approach. The Mountain View (Calif.) company, maker of TurboTax, mulled several choices in late 2008 to keep employees engaged, including an option-exchange program and a cash-retention bonus. But in the end Intuit decided on accelerating the timing of its annual grant of restricted stock units (RSUs) to February. Such a grant normally would occur only at the end of the company's fiscal year in July.
Intuit human resources vice-president Jim Grenier says he preferred RSUs over stock options because RSUs, unlike options, always have value no matter what happens to the company's stock price. Excluded from the special grant were senior vice-presidents and above, as well as new hires and the lowest-performing 5% to 10% of employees, based on the most recent performance assessment. "We don't want to pay just for pulse," says Grenier, adding that employee engagement scores have not dropped off, even though Intuit conducted layoffs last summer.
Not every company is in a position to made a huge equity grant right now. But small gestures can go a long way during difficult times, so many firms have recently turned to an Irish outfit called Globoforce, which designs corporate recognition programs for clients like Intuit, Procter & Gamble (PG), and Dow Chemical .
Globoforce's programs allow employees to choose a reward they want rather than co-workers or managers making the choice for them. A music lover in accounts receivable, for example, might choose tickets to a concert, while a foodie in sales might choose a $50 gift card to Whole Foods. Such freedom of choice can be much more effective than the scattershot, ad hoc recognition (think: pizza parties) that normally takes place in corporations. "Think of it as employee intimacy," says Linda Amuso, president of workplace consultancy Radford Surveys + Consulting. "You hone in on what they value and get it to them."
Such programs are more valuable than ever in a recession, according to a study conducted last fall by Towers Perrin that polled more than 10,000 respondents in 13 countries. (Globoforce, whose U.S. headquarters is in Boston, has closed several deals in the first quarter of 2009 with clients like Celestica and The Hartford.) Nearly half (49%) of U.S. companies have recognition programs, according to a May 2008, study from Watson Wyatt. But those programs only target 10% of employees in the U.S., compared with 36% at European firms, the survey found, so there's an opportunity to enlarge their scope and effectiveness. "This is a very simple way to motivate," says Elton.
There's a risk associated with rewards, however. Charles Jacobs, author of Management Rewired, argues in his new book that when managers dangle monetary rewards, employee motivation can actually suffer. It all has to do with how our brains are wired, he says. When we're focused on the work we're doing now, an area of the brain called the nucleus accumbens releases dopamine, which pumps us up and gets the brain working quickly. Focusing on an extrinsic reward, though, rather than work can be counterproductive, according to Jacobs, as it diverts the brain's bandwidth from the task at hand. "We like rewards and they work," Jacobs says. "But rewards can distract us."
Extrinsic rewards are clearly not a panacea—the psychological lift that employees get from doing work that matters to them can be just as valuable. A new tool called the Work Engagement Profile— released by CPP of Mountain View, Calif., the same company that publishes the Myers-Briggs personality assessment—examines the internal motivations that fuel employee engagement. "Research shows that managers underestimate the importance of intrinsic rewards," says Kenneth Thomas, the profile's co-creator. "And now they're in a situation where they cannot use [monetary] rewards as much, so it's a perfect time for this."
Sherif Mityas, CEO of Movie Gallery, the video and game rental chain, is learning on the fly how best to engage his staff. Here's a company whose 25,800 employees have every reason to be in a funk: The company emerged from bankruptcy last May, consumer spending has plummeted, and movie rental chains like Movie Gallery are facing severe threats from online rivals like Netflix (NFLX), DVD vending machines, and video-on-demand offerings from cable companies.
Mityas' plan to keep employees motivated includes a new customer-focused training program to show employees how to sell games not just to teenagers, but to busy moms as well. Not everyone was on board with this—Mityas has replaced as many as 30% of store managers. Those who remain are engaged, in part because the managers who do the best job of signing up customers for the company's new subscription program will earn a trip to Hawaii. But what really inspires employees, Mityas finds, isn't the size of the prize, but the awareness of it among the staff.
"There's a lot of value in being recognized among your peers," he says. "It's about creating the desire to do the right thing every day."
Boyle is deputy Corporations editor for BusinessWeek.