How do you bring out the best in investment professionals? How do you motivate them and get them fully engaged? (Gallup estimates that less than 30% of U.S. workers are engaged.) The myth for decades has been: “Show me the money!” The more you pay me, the more you motivate me. Simple.
Fortunately, State Street Center for Applied Research (CAR) and the CFA Institute have teamed up to dispel this myth. In a recent piece called Discovering Phi, Suzanne Duncan and her team dug into this topic using SDT (Self Determination Theory) as a framework for researching motivation. SDT assesses motivation on a scale ranging from extrinsic to intrinsic motivators, defined as follows:
|· Emotional pressures
· Winning and competition
|· Doing something important
· Believing in what you do
· Doing it because it’s right
· Doing it because we love it
Extrinsic motivators are carrots and sticks. They represent external influences that attract or repel. Bonuses attract. Threatening bosses repel. Conversely, intrinsic motivators—aptly named—are independent of influences outside of us. When we do meaningful work, we are naturally motivated. When we do the right thing, virtue is its own reward. When we love our work, we thrive. Ideally, doing purposeful work that we love is as good as it gets.
So, which is more effective in obtaining investment success: extrinsic or intrinsic? The phi study revealed that a one percent increase in phi—based on a diagnostic created by CAR—is associated with:
- 28% greater odds of excellent organizational performance
- 55% greater odds of excellent client satisfaction
- 57% greater odds of excellent employee engagement
There you have it: more success and more engagement when intrinsic motivators are at work. For shorthand, you can interchange the word phi with purpose. More phi equals more purpose which drives more motivation which leads to better results. What actions can investment leaders take to build phi in their firm?
|Articulate a compelling vision.
||Only 44% of investment professionals believe that their leaders do this.
|Remind staff of their fiduciary duty.
||Only 46% of retail investors believe that financial institutions operate in the client’s best interest.
|Create an inspirational statement of purpose (A mission statement that explains the “why” for the firm.)
||Only 5% of managers believe their mission statement has a significant positive influence on the day-to-day lives of their employees.
|Teach and coach employees.
||Only 33% of investment professionals believe this is occurring at their firm.
The above are just some of the actions that leaders can take. Others include:
- Aligning staff with work they love to do
- Developing a set of core values that is meaningful to the staff
- Connecting the goals of the firm to purpose
- Providing staff members with autonomy: how, when, and where they do their work.
- Encouraging and supporting continuous learning
CAR’s phi-agnostic measures the level of phi in an organization. It measures the extrinsic/intrinsic motivators for each respondent (i.e. staff member), then aggregates them for a firm score.
Sadly, over half of the investment professionals in the pilot survey (N = 1486) had low phi scores. (And 13% had NO phi!) Given the evidence that high phi contributes to commercial success and employee engagement, firms should jump on this bandwagon. Right? (CAR offers the phi-agnostic to interested firms at no cost.)
Some have. One of the best firms that we (FCG) know—we call them “Focus Elite”–learned about the phi-agnostic and eagerly signed up for it. (Did I mention it’s free?) CAR crunched the numbers and came back with these results:
No surprise, the “Focus Elite” firm rocked it. Their high phi score more than doubled the number for the industry. And, their overall score was excellent. High phi firms do exist. And in the case of the firm shown here, their strong culture and superb leadership deliver excellent investment results. We are eager to collect more data, especially from our Focus Elite firms who presumably should have high levels of phi, given similar levels of strong leadership and culture.
Moving from industry averages on phi to specific elements, we polled a roomful of CFA charter holders in Toronto during a presentation on phi. The 40 attendees were asked to identify which elements of phi were alive and well at their firm.
The strongest response was “Acting in the best interest of clients,” but only 50% of the attendees felt that was true at their firm! (The phi research from CAR indicates that only 38% of investment professionals “believe that their organization is acting in the best interests of their clients.”) Clearly, from these results, the industry has not embraced phi yet.
Skeptics may read this and think, “Damn straight! The Almighty Dollar has ruled for a long time, and I’m not changing my bets. Money motivates. Besides, good accountability requires a little fear in the organization. Workers need to know that they’ll lose their jobs if they don’t perform. So, I’m still a carrot and stick guy.”
Here’s the danger in doubling down on this view. In a word: millennials. Waving around carrots and sticks has far less influence on them. Gallup calls it, “Purpose over Profits.” In their research, they found millennials are deeply interested in meaningful work and doing good in the world. Additionally, millennials are far more likely to leave a bad culture (read: fear and blame) than the prior generations (Xers and baby boomers). To attract and retain top young talent, the older generation must adapt to a new world. One where purpose trumps profits.
A second danger in trotting out carrots and sticks is the advent of knowledge work. Dan Pink writes convincingly about this shift in Drive. Extrinsic motivators are effective for industrial work, like assembly lines. Give workers a bonus for making more widgets and they’ll produce more widgets. Unfortunately, this approach—more carrots—doesn’t work well with knowledge workers. In fact, it can backfire. A simple study with children and reading illustrates this point. Two groups of children were asked to read books. One group was paid to do it. The other simply read for pleasure. Both groups successfully finished their reading assignments. The lesson came after the study was completed: The paid readers refused to read unless they were paid. The other (nonpaid) group continued reading because they had learned that reading was fun. The lesson was clear: If you train people to think that an activity is only worth doing if it is rewarded, then they’ll insist on a reward. The key variable here is intrinsic versus extrinsic rewards. Intrinsically, reading is fun, so we naturally will do it, regardless of an extrinsic reward. But if we link reading to extrinsic rewards—like money—then we feel cheated if we aren’t paid for it. The investment world has trained a whole generation of workers to feel that investment work must be highly rewarded. This causal connection exists even though a strong motivator for investment workers is “the nature of the work itself.” We have talked to countless investment professionals who say, “This work is fascinating. I’d be doing it for myself even if I weren’t paid anything.” (In other words, investing their own funds privately would be satisfying.)
Dan Pink, Frederick Herzberg, and now Suzanne Duncan (CAR) have shown conclusively that a shift from extrinsic to intrinsic improves motivation. In Pink’s view, the biggest intrinsic motivators are:
- Purpose: doing something meaningful to make a difference
- Autonomy: freedom to achieve the task in one’s own chosen fashion
- Mastery: continually improving, making progress towards greater excellence
The phi-agnostic emphasizes purpose but includes autonomy and mastery as well. Future leaders of investment firms would be wise to shift their mindsets from extrinsic to intrinsic motivators. Otherwise, they risk losing valuable talent. So, step away from the carrots and sticks…and bring on the purpose, autonomy, and mastery.
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OK. Having read these blogs, you must be wondering: when do we get to the heart of the matter? When do we talk about Money, Cash, Greenbacks? That’s what it’s all about right? Well, the Ego would love for you to think that. The Ego is greedy for more, always. Ego wants more for a variety of reasons. First, scarcity. There is never enough, so Ego always wants more. Fear drives the Ego to want more money, security, love, recognition, things, you name it. Second, status. The Ego likes to feel special. It wants to stand out from the crowd. Money is a way to do that: look at me, I’m rich. Third, the Ego loves to win, as a way to feel better than others. Money is a way to keep score. You are a loser. I am a winner.
Note FCG’s position is NOT that money is bad. It’s fine to make money and be financially responsible. And, personally, I’ve never wanted to live hand-to-mouth. But on the whole money issue, I think FCG has retained a level of sanity. I’m proud to say that all the partners at FCG left higher paying jobs to work here. Why? Simple. They love this work. They committed to the work, betting the money would follow. (For extremely rich readers: if you feel sorry for us, please send large checks made out to “FCG Relief Fund.”) All FCG partners have kids to put through college, so we’re not free of financial pressure. However, I’m happy to say that all of us woke up from the illusion that money brings happiness. It doesn’t. Research on this topic is clear. Daniel Kahneman, Nobel Prize winner, has studied the money issue and concluded that the benchmark amount in the U.S. is $75,000. Above that level of income making more “won’t significantly improve your day-to-day happiness.”
Already I can hear wailing and protests from the readers: “that’s not enough for me to be happy! Are you kidding? I live in NYC. I can’t even rent an apartment with that income.” Ok. Right. The dollar amount for NYC is higher: $99,150. Here’s the point: many of the investment professionals that FCG works with are making 10x that amount. This industry’s compensation levels are ridiculously high. And yet investment professionals still lose sleep over pay. The Ego is thrilled with this state of affairs, thinking, “I’ve completely won this battle. I’ve sucked them into a dead end, where no matter what they make, they’ll still be miserable. It will never be enough. Yes! (fist pump).”
So, what’s going on here? How do very intelligent people get fooled by the Ego? Think of the nature of money: it is very subjective and very relative. Despite consultant’s best efforts to provide fair and objective answers to the “money” questions, they can’t. A case in point, FCG was involved in a comp negotiation with a PM and CEO, in which the PM thought he was grossly underpaid at “only” $5 million per year. (Poor guy, only making 50x the “happiness” benchmark for NYC. I can barely keep typing with these tears flowing all over the keyboard…) The PM and the CEO requested special data from a comp consultant to see exactly what the “fair” range should be. After each of them reviewed the same data with a magnifying glass, they were still $4 million apart. He thought $10 million was fair, the CEO said $6. Subjective, right?
And then there is the “relative” part. This PM who was “only” making 50x the benchmark for happiness argued that his track record and experience were worth $10 million elsewhere in the city. So, on a relative basis, he was being screwed. (Several times during this negotiation I thought, “We really need some perspective. Maybe a trip to Bangladesh.”) The level of angst that both parties felt during this negotiation was absurdly high. There are families dealing with serious health issues who suffer less than these two.
Again, for the Ego, this is all GREAT stuff. Otherwise sane and rational people are moved to complete insanity by money. The Ego doesn’t really care how it snares you, just that it does. And the investment world, with its promise of big money, is almost too easy for the Ego. Like shooting fish in a barrel. Once you jump in to that “money” barrel, it’s easy hunting for the Ego. Rather than saying to themselves, “I won the career lottery by getting a job in the investment world”–a sane view–investment pros instead dive into the barrel and thrash about trying for more money. Even when the research is clear: it won’t make you a lot happier. People have a set point for happiness and even winning the lottery doesn’t affect the set point more than temporarily:
The study found that the overall happiness levels of lottery winners spiked when they won, but returned to pre-winning levels after just a few months. In terms of overall happiness, the lottery winners were not significantly happier than the non-winners. The study showed that most people have a set level of happiness and that even after life-changing events, people tend to return to that set point.
So, what’s a sane approach? Dan Pink’s research on knowledge workers offers some insight about motivation. And the key is: intrinsic rewards, not extrinsic rewards like money or promotions. Assuming you like the nature of investment work—and most investment people do—then the real motivators are:
- Mastery (getting better and better at your work, seeing progress)
- Autonomy (getting to do your work when you want, how you want, and where you want)
- Purpose (getting to do work that feels meaningful, that has purpose)
Pink’s advice about money is simple: get it fair then get it off the table. In other words, negotiate a deal that feels fair based on industry standards (comp data), then sign the deal and forget about it. Turn your attention to the enjoyment of the work and three factors above, which give you intrinsic happiness. FCG has seen this truth in the best companies we’ve worked with, the “Focus Elite.” Look at the factors that most differentiate them from “average” investment firms.
The biggest differentiator is compensation. When we explored this topic with the “Focus Elite” firms, we found an answer consistent with Pink’s research: money was not the main driver for these professionals. Sure, they wanted to be fairly rewarded—and felt they were–but they ranked compensation as a much lower priority relative to the average firm. They were already following Pink’s advice: get it fair, then get it off the table. Meanwhile, the Elite firms highly prized the other four factors in the table. No surprise that in FCG’s opinion these Elite firms are far less Ego driven. They’ve taken a pass on insanity. Score one for the “Mature Self.”
In a certain sense, the investment industry has itself to blame for employees’ preoccupation with money. Human beings respond to incentives. We can be trained. And we’ve been trained to hear the mantra, “it’s all about the money.” So, we make that our measure of success. To heck with the joy I get from doing the work, I want big bucks or I won’t be happy! A reading study done with kids provides a wonderful insight into this mentality. In the study, some children were paid to read books, while others simply read the books for enjoyment. Both groups of children finished their books and completed the study. What happened afterwards was illuminating. The paid readers refused to read if they weren’t compensated. The researchers had trained them to think: “You are a fool if you read for free!” In the investment world we train people to believe, “You are a fool to do this fascinating work for less money than the guy across the street.” I sometimes remind people that Warren Buffett started his career working for Ben Graham for NO money. He simply loved the work and wanted training from the best. From all accounts Buffett has never been driven by money. He simply loves the work. Which is why he uttered the famous statement, “I tap dance to work each day.”
By hanging out a shingle that says, “Stupid big money made here” the industry created its own problems. How? Well, think who is attracted to stupid big money. Big Egos. You set up a breeding ground for Ego driven people. If you build it, they will come. And, boy, did they. So now the industry is full of workers whose main driver is becoming filthy rich. Working closely with these people, FCG can attest that many are not happy despite the big money. And the ones who are happy, in our view, would be happy anyway. (Assuming they were making at least $75,000.J)
So, what’s the moral of the story? Don’t get snared by the Ego. Instead, find meaningful work in a firm you like, and let the money be a residual. Trust me, you won’t end up living under a bridge if you work in the investment industry. But you could end up in a cell—padded or regular–if the Ego has its way. Choose sanity.
Remaining sane, one day at a time.
P.S. I have to say it: Keith Robinson on our team does the best comp design work of anyone I know. He’s a very sane person. And helps others reclaim theirs!
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 See FCG website for LOL on “Autonomy” for more on this topic and our relationship with ROWE expert, Jody Thompson, founder of Culture Rx and author of “Why Work Sucks and how to fix it.”
 See LOL on “Playing with Purpose” for more on this topic.
Dan Pink tells us that purpose is one of the three big motivators for knowledge workers, along with autonomy and mastery. He writes:
“Autonomous people working toward mastery perform at very high levels. [As we’ll see, this characterizes many investment professionals.] But those who do so in the service of some greater objective can achieve even more. The most deeply motivated people—not to mention those who are most productive and satisfied—hitch their desires to a cause larger than themselves.” (Drive, pg. 131)
So, what is your firm’s purpose? And does it speak to a cause larger than yourself? Stop and think about that for a second before reading on. What is the mission of your firm? For many investment firms, it sounds like this:
“The mission of our firm is to provide superior investment performance for our clients.”
Some firms add in “service” as well because they have read—or intuitively know–the Greenwich research that asserts performance and service are about equally weighted in the clients’ mind. Ok, so if that is roughly the mission statement of your firm, does it make your socks roll up and down? Does it make you feel like you’ve hitched your desire to a cause larger than yourself?
Probably not. FCG has the unique opportunity each week to talk confidentially with investment professionals from around the globe and we’ve asked many of them directly: does the purpose statement of your firm motivate you? Many cannot remember the purpose statement of their firm which pretty well answers the question. Others who do remember it are luke-warm at best.
So, what DOES motivate investment professionals, if not some larger purpose? FCG has statistics on this question. When we do culture surveys with investment firms, we ask a question developed by McKinsey that examines “meaning in the workplace.” There are five possible motivators, and we ask survey participants to pick two. The aggregate results of 6 firms are given below:
Interestingly, and not surprising, the biggest motivators for investment professionals is the nature of the work. And that completely aligns with FCG’s experience in the industry. Investment pros do find their work fascinating. Some love collecting data, others love analyzing it, others love making decisions, still others love the macro view of thinking about the global markets. It is rare to find an investment person who is so-so about his career. Even more interesting, only 15% of respondents indicate that money is the main motivator. FCG knows this from our work in compensation, but much of the industry still embraces the myth: It’s all about the money. It’s not. Clients and colleagues each garner about 20% of the vote. In the world at large, McKinsey discovered that each of these factors is roughly equal weighted. So, if you had a large enough sample from a variety of industries, we’d see about 20% for each factor.
And now for the punchline, “larger” purpose only gets 8% of the vote. And none of the firms in this sample voted it as the top choice. (Note: each of the other factors was chosen as the top factor by at least one of the sample firms. But not “purpose.”)
Summing up what we have covered so far: Investment professionals love the nature of their work, so they have lots of passion for their daily tasks. But they are generally NOT motivated by the firm’s purpose, that is, a larger cause in the world. (Personally, I love doing crossword puzzles but my doing them is not serving a larger purpose! Now, if someone would PAY me to do crossword puzzles…J)
So, I found it interesting last week that leaders at a global summit spoke often and passionately about “larger purposes.” One leader called them “white-hot why’s.” In other words, what is the burning reason behind doing what you do? What is the reason that goes well beyond just the money? (Note: I realize that this discussion is somewhat age-dependent. Younger workers are appropriately motivated by money to pay off school loans, buy a nice house, pay the mortgage, etc. But seasoned workers in the investment industry are well paid and can broaden their view of “purpose” beyond money.) But even younger workers can have a white-hot why. Jim Collins spoke at the conference and told about his two-year stint at West Point. He said the feeling of purpose was palpable among the young cadets. They were wearing the “cloth of their country” and were willing to fight and die for it. And they clearly weren’t in it for the money! Many millennials are also expressing an interest in meaningful work versus simply earning a wage.
Another speaker was Ed Catmull (CEO of Pixar and author of Creativity, Inc.) Clearly, Catmull loves his work and has since his high school days. But there is more to it for him than simply creating 15 winning films in a row, the latest of which is Inside Out. Ed explained how his movies have a purpose beyond financial success. They are designed to teach important messages to the public. (Inside Out had a profound effect on my 12 year old daughter, so thumbs up Mr. Catmull!) As an aside, the creative process that Catmull described at Pixar was completely relevant to the investment process: bringing out the best thinking of each team member. I highly recommend the book for investment teams that collaborate, which should mean ALL investment teams! J
So, back to the “white-hot why.” What is yours? And does working at your firm align with it? The creativity guru, Csikszentmihalyi (famous for describing the “flow” state), said this about purpose:
“One cannot lead a life that is truly excellent without feeling that one belongs to something greater and more permanent than oneself.”
One way to frame this discussion of purpose is Maslow’s hierarchy. It is appropriate to focus on the “lower needs” first: security/safety, community/belonging, and competency/mastery. Once accomplished, there is a natural desire to move up to purpose and values. Investment leaders have presumably achieved the lower needs, so they are in a position to lead purposeful and values-driven lives. And this should translate into purposeful and values-driven firms. Note: the ego needs diminish as one evolves up the hierarchy. Evolved leaders should care more about clients and employees than about themselves.
Before I go any further, let me practice an FCG principle: walking our talk. In this case, what is MY white-hot why? In what way do I belong to something greater and more permanent than myself? A fair question. Here is my white-hot why:
Teaching and promoting conscious leadership.
Which leads naturally to…
- a better investment industry. One that serves the client and fulfills an honorable role of stewardship through ethical practices. Raising the level of public trust from the lowest of all industries (Edelman data) to the highest.
- healthier work environments where investment pros can thrive. Challenging leaders to go for the “triple win”: clients, staff, and shareholders…in that order. Creating purposeful and values-driven workplaces. (There are still way too many fear-driven cultures where “everyone is scared of the boss, so do what he says.”)
- More personal development for staff. Mentoring younger staff members, leading by example, and teaching that traditional spiritual values like integrity, responsibility, compassion and forgiveness are better motivators than ego and fear. Helping workers feel connected to one another and the firm’s mission rather than self-seeking (ego), i.e. “every man for himself.” (Or woman for herself.)
Those are my white-hot whys and they truly motivate me to give my best efforts to clients. For me, doing the above feels like a spiritual calling.
Interestingly, Charles Ellis in his most recent FAJ piece, “In Defense of Active Investing”, also talks of the spiritual implications of doing investments the right way:
“The best long-term benefit of active investing—and all its many benefits—is not just economic but also spiritual.” (FAJ, July/august, 2015, pg. 6) I am happy to see one of the recognized pundits in our industry acknowledge that investments plays an important part in spiritual evolution. I know many investment leaders of deep faith, and it disturbs them greatly to see our industry so far from its noble calling.
So, what are examples from our industry of organizations led by strong purpose? They do exist. For example, FCG has had the privilege of working with Texas Teachers in Austin. If you ask their staff why they chose to work at TRS instead of a higher paying job on Wall Street, they will tell you without flinching, “I want to serve the teachers of this state…who teach our children.” That is purpose. Or, if you ask workers at TIFF, they will point to their mission statement: TIFF exists to provide investment excellence on behalf of endowed non-profits. And then they point to the rest of the credo, which is prominently displayed on the office walls. When FCG asks TIFF staff members, “why do you work here?” they frequently state their passion for the mission of the firm.
Still another moving example of mission was Marc Mayer’s  description of the analysts’ role in the capitalist system, which I had the pleasure of listening to him deliver to an audience of analysts. He used the classic “4 why’s” method:
Why does Sanford Bernstein exist?
To provide superior global research
To know more and make better decisions
To create better long term performance
To provide peace of mind for our clients
After digging into the deep “why’s” of Bernstein’s mission, Mayer went on to compare the investment process to his 100 year old watch, which he removed and showed the audience: precision and quality at its core. Then he described the firm’s legendary researcher—Lew Sanders—as the best research analyst ever. And he cited Greenwich data: #1 in 8 different research categories, with a performance record over 30 years of 415 basis points of outperformance on average each year. 68% of the largest pension plans were Bernstein’s clients. And finally, Mayer ended with this quote:
“I draw strength from this record. You are part of the greatest research organization in the history of capital markets.”
I have never heard a more motivating description of the research role before or since. (The audience maintained quiet reserve. They were, after all, research analysts.) But clearly, Mayer knew his white-hot why.
On a purely practical level, it is important for individuals and firms to find their deep sense of purpose. Dr. Edward Hallowell, Harvard Medical Staff, has researched the importance of purpose at work, using these questions:
- Do you feel a sense of mission at work?
- Do you feel a purpose larger than just taking home a paycheck?
- Would you continue with your work even if you were independently wealth?
People who could answer strongly “yes” to these questions, were described by Hallowell as being more connected to their work. And the benefits of connection were profound:
“The protective value of connection showed, under statistical multivariate analysis, to be present at all ages…statistical advantage of living longer was enjoyed by the highly connected group.”
People who feel purposeful in their work are less likely to burnout, suffer stress symptoms like migraines and ulcers, and are generally happier and more productive. The researchers at Gallup know this and have developed a survey question in their famous “Gallup 12” to measure it:
Does the Mission/Purpose of my company make me feel my work is important?
FCG uses a similar question in its “Team Scorecard” assessment: I feel that my work is important to reaching our firm’s goals. Not surprisingly, this factor is rated “Very Important” by the hundreds of teams that have taken the survey. Teams that rate themselves highly on this factor tend to be high performing teams. Purpose motivates.
My hope for the industry is that leaders become increasingly aware of the link between purpose and their firms. First, search inside yourself. What is your white-hot reason for being in the industry? Go beyond the obvious ones—like money, power, status—and search for what Ellis calls the “intangibles.” When Ellis allowed himself to think about this, he concluded, “I had enjoyed contemplating the satisfaction that professional investors could take in doing good, however indirect it might be.” And then he adds, “To the extent investment experts continue to do the important work of advising clients on investment policies to achieve their true objectives and values and sustain their commitments through various markets, our profession will be appropriately admired and well rewarded.” (FAJ, pg. 7)
To the extent that investment professionals can define purpose more deeply—and execute on it—the industry will reclaim its rightful position as a noble calling. And we’ll see more investment professionals choosing the first of the “meaning” factors in the FCG survey:
The work serves a larger purpose, doing something positive in the world (such as allocating capital property in the markets.)
Leaders in the investment world should help themselves and their staff members find the white-hot whys that serves a larger purpose. They should be asking themselves: “is my firm driven by purpose and values?” This is the path to reclaiming greatness.
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 The Investment Fund for Foundations
 formerly the leader of Bernstein’s sell side research department, now with Schroders
 The 5 point scale is: 5 = crucial, 4 = very important, 3 = important, 2 = neutral, 1 = unimportant
 From the chart shown earlier in this blog