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Pay increases can do more harm than good

There is an alternative

The headlines in the legal industry have been dominated again by salary increases implemented by some elite law firms. While I will refrain from adding my opinion into the mix, I was more struck by an article from Above the Law by Joe Patrice—Matching Milbank Is Incredibly Affordable…Don’t Believe Anyone Suggesting It’s Not.

Mr. Patrice makes the argument of how little an impact it would be if more firms offered a $10,000 pay increase. For example, for Cravath, the cost would be under $3 million; for Davis Polk, it would cost $7.8 million; and for Skadden, it would be $10 million.

Again, I don’t have an opinion about the affordability of such a move for law firms. That’s up to them. Instead, I think, “Wow! What firms could do with that money to improve engagement, other than through continued compensation increases…”

Before we dream about what could be done with those funds, let me first discuss the impact of pay increases on performance.

In his book DRIVE, Daniel Pink shares research and his observations about human motivation—in particular, comparing and contrasting intrinsic and extrinsic motivation. Specifically, he asks, “Do extrinsic rewards, e.g. increased compensation, boost performance?”

The simple answer is No. In fact, it does the opposite.

Numerous studies show a negative correlation between compensation and performance. Yes, an employer needs to achieve the right or adequate base level of pay but continuing to increase pay doesn’t continue to increase effectiveness.

“In 2009, scholars at the London School of Economics analyzed fifty-one studies of corporate pay-for-performance plans. These economists’ conclusion: ‘We find that financial incentives…can result in a negative impact on overall performance.” Translation: more pay doesn’t equate to higher productivity, increased engagement or improved performance.

Additionally, research points out that if you pay someone in order to attain a desired behavior, the initial reward “buzz” will taper off and you’ll likely have to continue or increase the payment to achieve the same result. For example, “pay your child to take out the trash—and you’ve pretty much guaranteed the kid will never do it again for free.”

So, what do you do instead?

Answer: focus on fostering and bolstering intrinsic motivation. In other words, create a work environment that internally excites your team members. Focus on creating a daily experience where people are excited to “go to” work each day.

And, how do you do that?

Teach your partners how to manage more effectively. I can’t say this often enough—how someone is managed has a direct impact on engagement, loyalty, commitment, motivation, productivity, collaboration and so on. Yet, in law firms, we rarely teach more than basic delegation and feedback skills.

So, that’s what I would encourage firms do with the $3 million, $7.8 million and $10 million. Invest in training your leaders how to more effectively manage. I guarantee the ROI will be much greater.

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