The New Horizon

A new world explored with a rational view

Steven Levitt says why fat salary doesn’t work …

with one comment

Levitt Says (gist)

I think Financial incentives are far overrated. The problem is that the people acclimate with them almost immediately. My friend works at a dogfood manufacturer in Boston. A lot of poor migrants work for the factory, they make very poor wages. As perk, she once organized that all of them would get a turkey for Christmas. The first year they were very happy. They were so elated that the company is providing them with some benefits and the morale went high. The next year they again gave a turkey and nothing really happened. Within a year the workers were decided that it is their God given right to get a turkey from the company. The third year they were furious. They complained that the turkey this year is not as big as the turkey last year. This is true for any kind of financial incentives – as soon as you give it once, people just expect to get it over and over.

I think the real answer is to cajole or trick your employees into thinking that what they are doing is important. That’s far more effective in the long run than giving the money. People who love what they do, think what they do makes the difference, are much better employees. For example, I spent a lot of time in Google. And Google is more cult-like than any other organization is. People who work for Google love Google, they think Google is incredibly important. That’s how Google is able to keep their employees happy.

And I add –

The other side of the coin is equally important. An employee should not commit to a company only by looking at the financial incentives. Because, very soon he’ll get used to it. Employees should look for a place where they can make the difference, or they can add important values to the company. That may not convert to a short term financial gain, but in the long run, it will worth more than mere money.

(Inspired by Steven Levitt’s talk. Steven Levitt is a famous Economist and author of the book Freakonomics.)


Written by Diganta

July 22, 2008 at 7:01 am

One Response

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  1. Agree. Also, I think you can very well bring the marginal utility and uniqueness factors into this discussion; Maslow’s hierarchy can be applied too.


    January 29, 2010 at 11:25 am

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