As venerable financial institutions collapse, tens of thousands are laid off and bonuses are slashed, managers on Wall Street face yet another challenge: how to inspire the shell-shocked workers still on the job.

"What really motivates employees is not money or position," says Jon Katzenbach, author of half a dozen books on the topic and one of the founders of Katzenbach Partners, a management consulting firm. "What motivates employees is how they feel about the work itself."

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Wall Street may be home to the alpha male, but the biggest mistake many financial firms make, he argues, is to base their entire system on bonuses and promotions. When crisis hits, money is short and new opportunities scarce, managers simply can't motivate their employees. "You'll find that the finest firms in the industry, the 'Goldman Sachses' of the world, go beyond that." Katzenbach says.

In the early days of the financial crisis, Subha Barry, global head of diversity and inclusion at Merrill Lynch, commissioned a study of employee motivation in financial services along with with counterparts at Lehman Brothers, Credit Suisse, Citigroup, Goldman Sachs and Moody's.

Carried out by the Center for Work-Life Policy and Sylvia Ann Hewlett Associates, the study found senior executives in the financial sector were "angry, anxious and deeply stressed."

"I am grinding my teeth so badly that I'm developing cracks," said one banker.

The study found that employees' loyalty, engagement and trust have plummeted in the past year. More than three in five participants said that they were considering quitting their jobs, and one in four were actively looking for another one.

To keep staff--and to keep them committed--in times of great stress, "you need to start with something as simple as more effective communication," says Barry. Hold town hall meetings with senior managers. Organize team briefings to inform everybody of the latest news. That way you keep everyone together and prevent employees from finding out about their future through the media.

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Massive layoffs make those who kept their jobs feel insecure. A manager can deal with this is by stressing that more work means more job security--companies rely more on their remaining employees, says Kerri T. Perez, a member of the Employee Relations Special Expertise Panel at the Society for Human Resource Management.

Managers should also show that they are there to stay, says Perez. "Most of the times, when a company has a problem in a downturn, people are afraid that the person they report to or the leader in their area is going to leave them. It's just human nature."

During this financial meltdown, workers have had less sleep, more anxiety and shown a wide range of physical and psychological problems: ulcers, memory loss, high blood pressure, fertility complications and depression. Mangers have to counter this sentiment expressed by one study participant: "It seems pointless to overcommit to work since the company does not seem to commit to its employees."

One option is to exercise flexibility. Take the team out to lunch, a drink after work or a workout in the park. That helps strengthen bonds inside the office and motivate employees.

Be "more considerate about people wanting to take time out to go to the gym," adds Barry. "Working out is a great way of relieving the stress." This is especially true since many employees in the financial sector have reported turning to caffeine, cigarettes, alcohol, food, painkillers and sleeping pills to cope with the stress.

Some managers also suggest organizing "Fast Fridays" (employees rotate to take half the day off) or offer mini-sabbaticals of less than six months.

If a company is going to lay off employees, it should act fast, says Katzenbach. "Until it's done, everybody is insecure, and as long as everybody is insecure, that's all they're going to be worried about." It is difficult for them to focus on anything else and motivation is jeopardized, he says.

For this reason, how you treat employees who are leaving the company and how you help them find alternative employment are crucial. Keep in touch with those who leave though an alumni organization or a talent bank with work opportunities.

For those losing their jobs, chances to rebound or find another one may shrink. For survivors, crisis is opportunity. Senior ranks are trimmed during reductions. That may open opportunities for employees to climb the ladder.

Managers can also help workers learn from the turmoil and be better prepared to face new challenges. "In the 20 years I've been in different businesses, when people make it through the crises they're stronger and they're better," says Perez. "And they end up doing something that they're much happier at."

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