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December 17, 2017

Small Business Advice:

What really motivates staff?

"There are two levers for moving men -- interest and fear." ~Napoleon Bonaparte

Jerry Osteryoung | 11/25/2012

Finding out what motivates staff is more of an art than a science. So many people believe that money is the proper incentive for all workers, but that just is not always the case.

I have seen so many employees who are simply not motivated by money. They just do not value it enough to alter their behavior. Time off, on the other hand, may hold greater value for some – especially Gen Y staff. Bottom line is incentives have to be structured so they relate to the things your staff values.

One manager had been looking for an incentive to motivate one of his employees. He had tried everything to no avail and had become very frustrated. Finally out of desperation, he got her a $500 gift certificate to an upscale women’s apparel shop. This worked and actually ended up being a whole lot less expensive than the other incentives he had tried, but it was successful because he was able to customize the incentive to this staff member’s wants.

On the other end of the spectrum from incentives and rewards is loss aversion. The theory here is that the hurt associated with a loss is much more motivating than the satisfaction of a gain. To use myself as an example, I have been to Las Vegas many times, but I never gamble because the idea of losing money is so much more repugnant to me than a financial windfall is appealing.

Using teachers in Chicago, three researchers did a neat experiment to test this theory and how it might relate to performance. Participants were randomly selected and divided into two groups. Both groups were given a set of performance goals for the year, and their success would be measured at the end of the year.

The first group was immediately given a $4,000 incentive and told that they would have to pay back a portion for every goal that was unmet at the end of the year. For the second group, they set up a bonus system that would pay each teacher up to $8,000 for meeting their goals. In the first case, the reward was given up front, but with the second group, the incentive – though not paid until the end of the year – could potentially be double that of the first group.

Results showed that grades were as much as 10 percent higher among students whose teachers were members of the first group – the loss group – than they were for students whose teachers were in the second group. In this example, applying the loss aversion theory really seemed to work.

So if loss aversion is so successful, why is it not used more in business? I think this is due to a couple of reasons. First, many managers and owners are just not familiar with this behavioral theory, and second, many employers feel uncomfortable about taking money away from their employees. A more palatable alternative might be to take the money back from future incentives.

While many employees relate to a monetary incentive, many just do not. To be successful, an incentive program needs to be tailored to the individual employee, and there are many potential ways to motivate – including loss aversion. You just have to find what works for your staff.

Now go out and make sure that you have the right incentives in place to excite and motivate your staff.

You can do this.

Other small business advice columns from Dr. Osteryoung are here. Note: Articles older than 30 days require registration (it's quick and free).

Jerry Osteryoung is a consultant to businesses - he has directly assisted over 3,000 firms. He is the Jim Moran Professor of Entrepreneurship (Emeritus) and Professor of Finance (Emeritus) at Florida State University. He was the founding Executive Director of The Jim Moran Institute and served in that position from 1995 through 2008. His newest book co-authored with Tim O'Brien, "If You Have Employees, You Really Need This Book," is an bestseller. He can be reached by e-mail at

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