What drives someone to improve themselves?

Is it enough to let people find their own motivation and work their way to the top? Or should an organization take a more active role in fostering employee growth and skills development?

In the first two articles of this series, I defined the concept of skills-based organizations and examined the different tools that can be used to benchmark skills and measure progress. In this article, I’ll discuss one of the most important aspects of a skills-based organization: incentives.

Over the last decade, many companies believed and invested in the idea of self-directed learning. These organizations hypothesized that giving employees access to educational content would be enough to get them to engage and guide their own growth and development. We thought employees would know best regarding what skills they needed to learn and how to motivate themselves. But it’s not that simple — giving someone access to a gym doesn’t mean they’re going to naturally become a bodybuilder; access to the courses themselves didn’t drive massive increases in skills and abilities.

Completion rates for self-directed learning are extremely low: research published in Science in 2019 found that the average rate of completion for massive online open courses ranged from just three to six percent. It’s now obvious that employees require some level of intervention and guidance from their employer.

The key to fixing the flaws in self-directed learning is in choosing the right incentives, rewarding both actual business outcomes and momentum. Organizations can afford to be patient with business outcomes, but not with learning itself. Momentum should be measured through learning velocity — the rate at which people can acquire and apply new skills. An effective incentive program can increase overall learning velocity, resulting in an organization that moves more quickly and is better suited to meet and exceed its business outcomes.

Why incentives matter

An organization’s workforce is dynamic — it can grow or downsize, evolve or stagnate, overachieve or underachieve. When you invest in your employees’ development and growth, you increase the value they contribute to the organization as a whole. Comparatively small investments in training and education can pay huge dividends as the organization becomes more competent, creative and innovative.

Growth and development doesn’t just matter to the organization and its leadership — it’s top of mind for the employees themselves. A recent McKinsey report found that the top reason employees left their jobs between April 2021 and April 2022 — cited by 41% of respondents — was a lack of career development and advancement. Growth is an essential component of employee retention: when you invest in an employee’s skill development and give them opportunities to apply those skills, they’re far more likely to stay with the organization.

Growth and development are even more important for employees as they consider their careers in the context of generative AI. Now more than ever, employees find themselves wondering if their job will even exist in five to ten years. Employers that invest in their employees’ learning not only give them new skills, but also hope and confidence that there’s a future for them in the company.

But as I mentioned above, it isn’t enough to turn employees loose and let them direct their own studies and development. Every organization needs their employees to deliver specific abilities and complete specific tasks — choosing the right incentives can ensure that your employees grow in the direction you need them to grow. Incentives should be carefully aligned with overall business objectives; the more an employee can provide value to the organization, the more they should be rewarded.

Incentive choices for skills-based organizations

Every employee is different — not every person will respond in the same way to the same set of incentives. Skills-based organizations should choose from a diverse menu of incentives to ensure they can motivate each employee and maximize growth and learning velocity.

Incentives can be broadly divided into two categories: intrinsic and extrinsic. Intrinsic motivators are self-directed and cultural — they must be built up over time and cannot be simply implemented in the short term like many extrinsic incentives. (For a fantastic read on intrinsic motivation, I highly recommend Daniel H. Pink’s book Drive: The Surprising Truth About What Motivates Us.)

Although we expect intrinsic motivators to be more effective than extrinsic motivators over the long term, I recommend using both. Over time, you may be able to remove some of the extrinsic motivators as people are motivated intrinsically.

Extrinsic incentive programs can be broken down into these four broad categories:

• Healthy competition: Your employees should be working together to reach the organization’s goals, and a cut-throat, dog-eat-dog environment does significantly more harm than good. But healthy, friendly competition among employees can be an effective motivator to drive faster growth. Some skills-based organizations establish leaderboards to track employee learning — orient your leaderboard around learning velocity to ensure a fair comparison, and celebrate those who rise up the leaderboard (without disparaging those who fall behind). Organizations can also issue digital badges to highlight employees who have achieved the most success within the program. One effective variation on the competition approach is to use team-level scores, which can be particularly motivating as employees want their team to succeed and don’t want to let down their friends and colleagues.
  
  
• Compensation and rewards: This isn’t my favorite solution, but it’s no secret that cash is an effective motivator. Companies can tie cash compensation and other tangible rewards to specific, measurable skills, unlocking rewards when they achieve a certain level. These resources aren’t limitless, so they should be deployed carefully to drive employees towards the most valuable skills. 
  
  
• Gamification and nudges: One of the most well-known examples of using incentives to encourage learning is Duolingo, which uses a combination of streaks, badges, notifications and leaderboards to encourage users to continue practicing. According to Duolingo, their approaches to gamification “help communicate what to study and when.” These simple mechanisms can have powerful results, keeping employees engaged and on track to meet their development goals.
  
  
• Mentorship and opportunities: Incentives and motivation aren’t just a matter of tools and systems — there are also interpersonal elements. Skills-based organizations can use mentorship and projects to motivate employees to develop new skills. Reaching a certain skill level could lead to an employee gaining a mentor, or being assigned to an important project. These steps themselves foster further growth and develop, providing the employee with access to unique experiences and perspectives. Becoming a mentor could itself be a powerful incentive, allowing an employee to build their network and increase their influence in the organization.
  
  
• Earning access to new tools: Upskilling can prove that employees are ready to integrate new tools and approaches into their daily work, and this approach can be powerfully motivating as people work to unlock the next stage in their development. You can make certain tools available to employees upon reaching certain scores — for example, asking employees to certify their abilities with responsible AI, generative AI, and prompt engineering before rewarding them with access to the latest generative AI solution. This approach gives you the best of both worlds: your employees are fully enabled to work with AI, which in turn results in greater productivity and quality of output.

Raw scores, learning velocity, project outcomes

What is more important for a skills-based organization: raw scores or learning velocity?

Of course, a skills-based organization needs to measure — and incentivize — both. The better your raw results as a team, the better your performance as a business.

However, learning velocity is the stronger indicator of long-term success, particularly as we respond to emerging technologies and rapid change. The more a business can improve its overall learning velocity, the more competitive they’ll be in the face of change and innovation.

Rather than being tied to raw outcomes, incentives should most often be connected to learning velocity. The faster an employee is able to take on new abilities and apply them to their work, the more dynamic that employee becomes in the overall organization. Imagine a business in which every employee is growing and learning at their fastest possible rate, and in which that growth is tied directly to the needs of the organization. It’s unstoppable.

Bibliography:

• De Smet, A, and others, The Great Attrition is making hiring harder. Are you searching the right talent pools?, McKinsey Quarterly
• Dell'Acqua F, and others, Navigating the Jagged Technological Frontier: Field Experimental Evidence of the Effects of AI on Knowledge Worker Productivity and Quality, Harvard Business School Technology & Operations Management Unit
• Katanforoosh, K, The Race to the Top: Why learning velocity is an indicator of business and career success, Workera