Banker Motivation

As I mentioned in December Book Lust I’m reading Dan Pink’s new book Drive: The Surprising Truth About What Motivates Us. The book’s publisher had perfect timing, with  January’s headlines of banker bonuses and the prospect of taxing TARP recipients.

There’s a lot of hand wringing about what will happen to the entire economy if the financial sector is reined in:

• Will “under paid” (therefore presumably under qualified) bankers screw up the economy?
• Will all the good financiers move to hedge funds, leaving our big banks in the hands of a bunch of brain-dead drones willing to work for a mere 25x their average company worker’s wage?
• Is limiting banker compensation the last nail in capitalism’s coffin?

And then there’s the rumor that Goldman Sach’s Lloyd Blankfein will be taking a $100m bonus for 2008′s work. That’s in contrast to the US Census Bureau’s report that the average 2008 per capita income was just under $27k. I don’t think the feudal lords of the dark ages made those multiples.

Before jumping in with Drive‘s analysis of human motivation,  I’ll let The Daily Show guide us down memory lane with those to whom much was given and nothing was demanded:

The evolution of motivation

Mr Pink says Motivation 1.0 centered around survival. Sometimes survival meant stealing a meal or a spouse but eventually the human species figured out that cooperation was a less painful, more humane way to conduct ourselves, and Motivation 2.0 came into being.

Motivation 2.0 centered around punishment and reward and “it is so deeply embedded in our lives that most of us scarcely recognize that it exists.”

Despite its greater sophistication and higher aspirations, Motivation 2.0 still wasn’t exactly ennobling. It suggested that, in the end, human beings aren’t much different from horses — that the way to get us moving in the right direction is by dangling a crunchier carrot or wielding a sharper stick. But what this operating system lacked in enlightenment, it made up for in effectiveness. It worked well, extremely well. Until it didn’t.

The Seven Deadly Flaws of Carrots and Sticks:

1. They can extinguish intrinsic motivation
2. They can diminish performance
3. They can crush creativity
4. They can crowd out good behavior
5. They can encourage cheating, shortcuts, and unethical behavior
6. They can become addictive
7. They can foster short-term thinking

This is not to say that carrots and sticks are always bad

Drive has a chapter on circumstances where punishment and rewards work very well, thank you very much. But we’re headed full gallop into Motivation 3.0, which recognizes that while people are at times profit maximizers (and therefore extrinsically driven), we are also “purpose maximizers,” which means we’re motivated intrinsically as well.

For the word lovers among us, “purpose maximizers” has its own Latinate descriptor: Homo Oeconomicus Maturus (Mature Economic Man).

Bruno Frey, an economist at the University of Zurich says “Intrinsic motivation is of great importance for all economic activities. It is inconceivable that people are motivated solely or even mainly by external incentives.“

Mr Pink lists several highly successful business people who are driven by intrinsics to achieve and even asks us to ponder whether the intrinsically-motivated Warren Buffett and Oprah Winfrey are any less economically successful than Jeff Skilling and Donald Trump (whom most would agree are Motivation 2.0 poster boys). 

What about the bankers?

Americans are stuck in Homo Oeconomicus (Economic Man) mode, instead of Homo Oeconomicus Maturus mode. We aspire to big bucks ourselves, so while there’s still a chance we can make the current system work for us, we’re loathe to reform it. I think this is why we  didn’t DEMAND taxpayer representation on the boards of the organizations we taxpayers saved from the ash heap in October 2008. That,  plus the fact that the moneyed class and the politicians they own have convinced us that we should fear big government more than big business (or perhaps anything else).

We’ve seen what extrinsically motivated bankers can do for society. I’m sure we can find some Homo Oeconomicus Maturus boards and managers out there — aren’t they the ones running credit unions?

Maybe Sir Richard Branson could bring “Virgin Money” to the US, too. The CEO (a woman!) says “Our aim is to make ‘everyone better off’ in the way we do business by offering good value to customers, treating employees well, making a positive contribution to society and delivering a growing profit to shareholders. Our approach to banking is founded on developing a sustainable, savings-based business.”

Finally, I’m not in a position to judge whether Lloyd Blankfein believed himself when he declared that his firm does “God’s work.” Stephen Colbert seems to have an answer to that question: