Boardroom motivation is all wrong

LAST Sunday evening, the BBC’s Today programme held a major public debate in Birmingham about the lessons to be learned from the August riots across a number of English cities; riots some have now dubbed the “because-I’m-worth-it” riots.

One of the loudest rounds of applause of the night came when Giles Fraser, canon chancellor of St Paul’s Cathedral in London said this: “There is something called ‘moral poverty’. During the last three decades I think we’ve probably bought into a market ideology driven by self-interest, by individualism, by consumerism. A sort of ‘me-first” philosophy that has fragmented community.”

Asked what he thought of Justice Secretary Ken Clarke’s characterisation of most of the rioters as “a feral underclass, cut off from the mainstream in everything but its materialism”, Canon Fraser replied: “I think it’s extraordinary that we are… focusing all our ire on a particular class of people when the same sort of self-interest is manifest in the City where I live and work… and throughout our culture”.

More vigorous audience assent. However, no-one in that Birmingham hall knew that, as they applauded, fresh evidence about the scale of rampant self-interest at the top of corporate Britain was about to emerge.

Next morning, the High Pay Commission revealed its latest findings from research into trends in executive pay and performance between 2000 and 2010. The HPC is a one-year initiative launched by the centre-left pressure group Compass, supported by the Joseph Rowntree Trust.

Its research was carried out by Incomes Data Services. And what a story it tells. In that decade, the total earnings of directors in all the companies that featured, however briefly, in the FTSE-350 index of leading quoted UK companies more than doubled (up by 108 per cent). Basic salaries were up 63.9 per cent, but bonuses rocketed 187 per cent, with 95 per cent of directors now getting them. While the value of long-term share-based incentive plans, into which no director has to invest a penny in advance, beat even that, rising by an eye-watering 700 per cent-plus.

The past decade has seen a massive banking crisis, a deep recession and a thus-far-anaemic recovery that has cut the real living standards of millions of families. So, if we really are all in this together, what kind of exceptional corporate performance justified these burgeoning rewards at the top? Well, over those same ten years, average pre-tax profits rose just 50.5 per cent while the market capitalisation of companies across the FTSE-350 grew, on average, by a miserable 8 per cent.

Pre-tax profits for companies outwith the top 100 barely grew at all over that ten-year period, up just 3.4 per cent. However, that didn’t stop rewards for executives in those so-called mid-cap companies receiving even bigger boosts to both their basic salaries and bonuses than their top-tier peers.

A slightly more convincing gloss can be applied to the overall picture by looking at alternative performance measures. Average turnover in the FTSE-350 was up a cumulative 80.4 per cent; earnings per share up 73 per cent. But the irresistible conclusion overall is, as the coalition’s Business Secretary Vince Cable himself has said: “Ridiculous levels of remuneration are going unchallenged as the norm, when there is no clear evidence of a correlation with performance.”

Indeed the UK Business Secretary could drive that argument a great deal harder. Cable could point to the work of Dan Pink, a former speech writer to US vice-president Al Gore, who argues that, beyond a range of largely repetitive mechanical tasks, paying people more to deliver a higher level of performance simply does not work. “It is,” says Pink, “one of the most robust findings in social science and also one of the most ignored.”

You can find Pink expounding his contrarian arguments about the nature of motivation on YouTube, both for Ted Talks and for the RSA (Royal Society of Arts) Animate series. In essence he contests the conventional wisdom that, if you reward desired behaviours in others, you get more of them. And if you reward them even more, you get even higher performance.

On the contrary, claims Pink, for tasks involving even rudimentary cognitive skills, larger rewards actually lead to poorer performance. He cites research carried out with students at MIT and then replicated in rural India which showed the pay-more-get-more systems of reward do not deliver the expected results. And in case anyone is getting the idea that this is some kind of socialist conspiracy, he adds, this research was commissioned by the US Federal Reserve.

The role of money at work, he argues, is to pay people enough to be sufficiently motivated. Then the money issue is “taken off the table”. In its place, suggests Pink, are the real motivators of really talented people: autonomy, mastery and purpose. Together, they create an entirely new operating system for businesses wrestling with “mystifying” rules of engagement in our post-industrial societies and with solutions that, if they exist at all, are “surprising and never obvious”.

Autonomy helps meet today’s “urge of individuals to direct their own lives”. Mastery satisfies “the desire to get better and better at something that matters”. Purpose speaks to “a yearning to do what we do in the service of something bigger than ourselves”.

Too many businesses, Pink argues, are stuck in a mismatch between what science knows and what business has always done. “What worries me as we stand in the rubble of the economic collapse,” he says, “is that too many organisations are making their decisions, their policies about talent and people, based on assumptions that are outdated, unexamined and rooted more in folklore than in science.”

It all sounds a very long way away from George Osborne wondering how quickly he can reverse that 50p income tax rate on top earners to release their enterprise.

Or Iain Duncan Smith reminding us yet again that the world divides into wealth creators, who need to be very well rewarded for providing jobs for the rest of us. Or the SNP government at Holyrood arguing that having the power to introduce an “attractive, competitive” corporation tax policy – that is maintaining a significantly lower rate of tax on company profits here compared with south of the Border – is the best way to boost Scotland’s sustainable rate of growth.

I know the riots in August didn’t spread up here, but the issues identified by Canon Fraser don’t evaporate when you pass Carlisle. The realities of excessive boardroom rewards, exposed by the HPC, have not passed Scotland by.

And what Dan Pink is saying about the real drivers of human motivation are just as applicable in this part of these islands as anywhere else. Is there no space within our ongoing constitutional wrangles to even talk about them?