The old model for motivating employees is dying. It's time for a replacement

Six-figure salaries and free lattes in the break room are enticing, but corporate workers increasingly are seeking something more. They want a sense of purpose, a feeling of true camaraderie, and a belief that they are having an impact within the company and outside of it. That’s where good leadership can make all the difference, says Fred Kofman, an adviser in leadership development at Google and former vice president of development at LinkedIn. His latest book, The Meaning Revolution: The Power of Transcendent Leadership, suggests that leaders should set goals greater than simply making quarterly numbers. Kofman joined the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111 to discuss how managers can execute his management ideas.

An edited transcript of the conversation follows.

Knowledge@Wharton: Your life’s work has been trying to define successful leadership. Why is this topic so important to you?

Fred Kofman: I came from a very technical background. I studied economic theory. I have a doctorate from Berkeley and taught management accounting and control systems at MIT. Throughout the early part of my life, I made this assumption that material exchanges were the essence of the business world. In order to motivate people, you had to incentivize them with rewards and control them and threaten them with punishment or taking away their rewards if they didn’t do what you expected them to do.

But I saw everything with rose, with maybe gray-colored glasses, which made material exchanges the essence of the problem. As I started working with real companies and real people, rather than what is modeled in the technical literature, I realized that without the necessities of life, one is miserable.

It is a very important basic level of needs to be satisfied. But once you cross that line, as we economists say, the marginal utility decreases at an increasing rate. That means material things become progressively less and less important relative to other concerns that we have as human beings.

Knowledge@Wharton: Is part of this generational? Younger generations have different concerns and are affected by different things than baby boomers.

Kofman: Absolutely. I think there is an evolution in a person’s life, from the time when you start your career and are worried about your future and have to acquire the platform for expressing your dreams, to the point when you grow up professionally and achieve a certain level of success, and then you aspire to other things.

The same process is happening with generations. The baby boomers, among which I count myself, were born in a certain level of wealth different than the people who lived through the Great Depression and the two great wars. I was born in 1960, so I did not go through any of that, but my parents did, and I could tell the difference.

I think there is an intergenerational conversation where the young people are always the ones who don’t really know how good they have it, and that’s how we think about millennials. But the other side of that story is that by having that good, they have a platform from which to aspire to even more good, and a good that at some point transcends material goods.

Knowledge@Wharton: How are companies being influenced by this shift?

Kofman: There’s a lot of fear, that’s for sure. There is always a war for talent. There is always a competitive market to attract, retain and develop the best people. Right now, we’re getting to the end of a particular curve of attractiveness, which is the curve of money, the curve of benefits, salary, stock option– you name it. All of these material rewards are extremely important, but they have gotten to the point where you can’t differentiate yourself based on that because everybody offers that, particularly in Silicon Valley. The companies have a lot of money to attract people, the salaries are always at the top of the scale, and it is very difficult to argue, “Come to Google rather than Facebook because we’ll pay you more.” It is impossible to differentiate yourself and to maintain the attractiveness if you only base it on material goods.

People are scared because there is a difference between what I call material and moral goods. A moral good is creating a sense of community, a purpose that is meaningful, ethical principles that will make people proud to participate and so on. The difference is that you can give material goods without involving yourself in them. If I buy an orange from you, I give you the money and don’t have to put my heart and soul in it, and you give me the orange. That is it. We both have a good exchange and that is fair.

But if we are going to work together, it’s not just about money if you want to inspire me to participate in the project that you want to realize in the world. Now, you cannot extricate yourself from the proposition. Who you are, the level of trust you inspire in me, or the level of excitement that you are able to light up by proposing a vision of what this might be, is essential to the transaction.

As the Beatles say, you can buy diamond rings but you cannot buy love. To compete and succeed, you need people to care, you need something that is much more like love than a diamond ring. In the times of the assembly line, well, just go there and do your station work, and we don’t care if you like it. There are time and motion studies that say exactly what you are supposed to do, and that is all we need.

Knowledge@Wharton: How do you think companies are reacting to this change?

Kofman: So far, very poorly. The companies are fighting the last war. People are trying to attract the new generation with the same technologies that attracted the past generation. You see this by looking at the abysmal levels of engagement. The surveys will tell you in the U.S., which is probably one of the highest in the world, employee engagement is 30%. So, 70% of the people either don’t care or actively hate their jobs and the people they work for, the people they work with, the places where they work and the customers they are supposed to serve.

How are you going to get excellence from people who don’t care or hate what they do? How do you make them care? In the past, before what is now called the knowledge economy, you might have been able to tell people what to do. But today, in any serious position in the company beyond entry level, it’s almost impossible to know the right way to proceed in the face of unforeseen circumstances.

You have these terrible disasters that you hear over and over again, like people at United are told get this person off the plane, and then suddenly you have this video going viral and everybody hates United and they lost hundreds of millions of dollars in market cap just because their brand went to hell. So you think, we should control people more. But it doesn’t work. You can’t control everything, and you can’t tell people what to do because you don’t even know what to do. Essentially, you need people to be intelligent and use their judgment and discretion to either decide or check with other people, and to want to do well.

Knowledge@Wharton: Do you think it’s an easier process today to get that buy-in from employees?

Kofman: Oh, no. It’s always been terribly hard, but that is why people talk about leadership because it’s the ultimate competitive advantage. I am not trying to be overly philosophical. The problem of leadership is that it requires inner development; you can’t just be a leader because you read a lot of books.

But there is an external expression of leadership, which is you get the job done, you get to win, you get to accomplish the mission. For that you need the best people giving their best effort. Most companies don’t get that because most leaders are not able to inspire that kind of commitment. If you only suck a little bit less, you are going to be great because in the land of the blind, the one-eyed Jack is king. And we are living in the land of the blind, where people don’t have any idea that this dimension even exists. They still think it’s about pay a little more and we tweak the incentives and we pay people for this or that and make the KPIs really important.

One of the things I tried to prove in the book is that if you want people to be accountable you need to give them key performance indicators that will be local, meaning you have to look at their work and their results. But if you want people to cooperate, that doesn’t work because that creates silos. Everybody is worried about their own results, and they don’t cooperate with others. There is an unfortunate result from systems optimization that says that if you want to optimize the system, you have to sub-optimize the subsystems. So, if you want people to cooperate, you need to allow them to not do the best for their subsystem and contribute to admission of the larger system.

You can only do that by giving them global performance indicators, not local. But if you give them global performance indicators that will engender cooperation, then you lose accountability. And if you have free riders or people who don’t pull their weight, or they are taking advantage, or there is just no talent to be part of the team, you will never know who they are because everybody argues they are helping everybody else, and then nobody is accountable for anything.

This is the problem that I wrote my dissertation on. I was trying to solve it, I would say, very naively. Now I realize that it cannot be solved because there is an inherent contradiction between these two metrics. The only way to solve it is by changing the paradigm, by changing one of the parameters of this problem so that you don’t assume that people are trying to get away with not working, and that requires people be inspired to do their best.

Knowledge@Wharton: When you refer to leadership, are you specifically referring to the leadership of the C-suite or mid-level managers, or both?

Kofman: My definition of leadership is eliciting internal commitment in order to pursue a mission. That has nothing to do with formal authority. The idea that I would like to propose is that a leader is the person that achieves this moral authority and deserves the commitment of other people to pursue a particular mission.

At home with my kids, I could be a manager or a boss and tell them, “If you don’t read, I will take your devices,” or I can be a leader and inspire them to read. At work, I can be even a colleague and inspire people to try a new idea. Those are gestures of leadership. For me, leading is the verb. Leader is not a noun or an adjective, it’s just a designation for the person who leads. And this person is able to inspire others to give their best to achieve a mission.

“The problem of leadership is that it requires inner development; you can’t just be a leader because you read a lot of books.”

Knowledge@Wharton: There are people in the office who feel like they have to do everything and be the superhero. How do those people affect the leadership dynamic?

Kofman: It’s a double-edged sword because if you are demonstrating your commitment by being fully dedicated to the mission, then that will inspire other people. But if you are taking over and covering up for other people not participating in the same way, and you are not holding other people accountable, then you are actually destructive. This is one of the paradoxes of the hard workers, which is that they enable the not-hard workers to remain hidden and to not be challenged.

Perhaps more difficult for the people who are working in a team environment is to hold each other accountable. That is what really makes the difference in extraordinary teams. It’s not just that they get along, but you also need to have this shared set of goals and standards and need to hold each other accountable so that nobody can belong to the team unless they fulfill the needs of everybody in the team. When people don’t do that, bad things happen.

It is incredibly difficult to avoid the silos and the interdepartmental conflicts that plague organizations, so it does require a revolution. I titled the book like that because there has to be a revolution where you solve the problem through different means, not just by trying to compensate people for collaborating, because that doesn’t do it.