What is the law of diminishing returns?
The law of diminishing returns is a technical principle that relates to the effectiveness of production processes over time.
But it’s a useful framework to help understand why the jolt of happiness that things give us weakens over time. You paint a new room and notice it everytime you go in. Then after a while it’s just part of the furniture. Or you buy a shiny new MacBook Air and feel a swell of pride every time you open the lid. Before long, it just becomes an old laptop that’s seen better days.
The happiness you get from something diminishes over time. Psychologists say that while things can and do make us happier for a while, we always return to a fixed, constant level of happiness. This idea is known as the hedonic treadmill.
Organisational life and the law of diminishing returns
The law of diminishing returns, and by extension the hedonic treadmill, are very pertinent to organisational life.
You get a new job on a great package. Fantastic. You’re motivated, feel like you’re well-paid and that people appreciate you. Every time it’s payday, you feel thankful your employer recognises your talent. How long until your pay rise becomes just a part of your life, and you feel resentful you aren’t being paid as much as other people in the organisation?
The same can happen with bosses. There’s a truism that even the best line manager can only give you 80% of what you need. And if your line manager gives you 80% of what you need, you probably have an amazing line manager. And yet, in time, you become fixated on the 20% they aren’t giving you and wonder if it’s time to move on.
Employee engagement: what does the law of diminishing returns mean?
When it comes to employee engagement, the law of diminishing returns is particularly relevant. Employee engagement efforts often focus on providing conditions or experiences to motivate people to become more emotionally-connected with work and increase their productivity.
The organisation might introduce an early finish on Fridays as a way to reward employees for working hard during the week and giving them the chance to see their families sooner.
This is novel for, say, the first three months. Employees are motivated to get all their work done quickly so they can leave early with a clear desk. But soon the early Friday finish is just ‘the way things are done around here’ and people’s contentedness with work returns to baseline.
These attempts to extrinsically motivate staff are often fueled by using an incorrect definition of employee engagement. A long-term, mature employee engagement strategy should be built primarily around tapping into people’s internal motivators in order to drive sustainable increases in productivity. But the reality of most employee engagement strategies is a combination of both internal and external motivators.
How can you improve your strategy to resist the law of diminishing returns?
Employee engagement strategies: resisting the law of diminishing returns
Discover your employees’ baseline
The hedonic treadmill theory, discussed above, suggests everyone has a happiness baseline and this is true in the workplace.
People are also affected differently by negative and positive events. Some people see recognition in the workplace as cynical – just a way of getting you to work harder – whereas others see it as a genuine attempt to say thank you.
One-size-fits-all engagement strategies never work because everyone is so different and it’s useful for line managers to understand their employees’ natural tendencies and feelings so that they understand how engagement efforts will land with them. They can then tailor these efforts appropriately.
Empower people’s internal motivation
The things in life that are very good for us unfortunately often have barriers. For example, rock climbing could motivate us towards excellence in all aspects of life, including work, but maybe it’s expensive, it’s too far from work, and you don’t have the equipment.
Organisations should be looking for ways to reduce the emotional and physical barriers to employees accessing internal motivators because, unlike external motivators, these are less susceptible to the law of diminishing returns. Paying for a weekly rock climbing session, or buying equipment for people to share, could be a good way to reduce the physical barriers and also produce some social pressure to get people to the bouldering centre.
In terms of work design and job design, focusing on internal motivators like autonomy, purpose and mastery (the three key internal motivators identified by Dan Pink in Drive), will help employees develop and fuel their own productivity. Anything self-propelled will always be less susceptible to the law of diminishing returns.
Non-dopamine reactive engagement activities
Any engagement activities that focus on self-growth and self-development (gym memberships, mindfulness sessions) are less likely to fall prey to the law of diminishing returns.
The law of diminishing returns is particularly strong for dopamine-driven rewards, such as free food, which can lead to an initial rush of happiness and then further cravings. (But that’s not to say the occasional pizza party, however, won’t go down an absolute treat. Anything in moderation, right…?)
Randomise your external motivation calendar
The Christmas Party used to be a way for companies to thank employees for their hard work during the year, but now it’s turned into an expectation. The more constant, expected and similar your external motivators, the less effect they have on employees over time.
Innovating what you do, making it spontaneous and not following a set rhythm (doughnuts and hot chocolate on Blue Monday?) are important to maximise the effect of external motivators on employees. Don’t always plan in advance.