Article: Is money enough motivation for employees?

Life @ Work

Is money enough motivation for employees?

Research shows that pay ceases to matter if the employee has all the basic necessities of life…
Is money enough motivation for employees?

The meaning of money is largely subjective and our relationship to money is highly idiosyncratic


Research shows that pay ceases to matter if the employee has all the basic necessities of life...

For most of us, money is a fundamental reason to work because it is measureable and tangible. Hence, it becomes a motivator by default though it may not be the primary one for many employees. But, would we continue to do what we were doing if we were not compensated for our efforts? It is at this point that questions like ‘does money really affect motivation?’ crops in. Thanks to the complexity of human behaviour, there is no definitive answer to this question.

Daniel Pink in his book, ‘Drive – The Surprising Truth About What Motivates Us,’ convincingly argues that money does not motivate people who work for us. Generally, people are more motivated to work harder when they have the ability to work on their own terms, he said in his book. This is not to suggest that money doesn’t motivate; in fact, to underplay the importance of money and benefits as motivation for workers would be a mistake.

The author states in his book that employees expect to be paid fairly, but over-paying employers do little to motivate them to work harder towards achieving company goals. In a similar vein, Entrepreneur quotes Ian Larkin, a professor of business administration at Harvard Business School, as saying, “Money is highly motivational for people… But saying money is the only thing we should use is also silly.”

Be it the Expectancy Theory or researches conducted by psychologists like Daniel Kahneman, each one point out that money motivates only to an extent. According to the Expectancy Theory, money will motivate employees as long as their personal goals are being satisfied and the perception that their pay is dependent upon their performance. Kahneman said money does not increase people’s happiness after they have got all the basic necessities of life.

Timothy A Judge, an organisational scientist and his colleagues in their 2010 meta-analysis, “The relationship between pay and job satisfaction” published in the Journal of Vocational Behaviour, gave the most compelling answer to this vexed issue. The results indicate that the association between salary and job satisfaction is very weak. The reported correlation (r=.14) indicates that there is less than 2 per cent overlap between pay and job satisfaction levels. Furthermore, the correlation between pay and pay satisfaction was only marginally higher (r=.22 or 4.8 per cent overlap), indicating that people’s satisfaction with their salary is mostly independent of their actual salary. The findings are in sync with Gallup's engagement research (October 2011), which reports that there is no significant difference in employee engagement by pay level.

So does money demotivate? It’s a tough question and there is no consensus about the degree to which higher pay may demotivate. A few studies throw some light on this aspect. Edward L Deci, Professor of Psychology - University of Rochester, and others in their seminal work, ‘A meta-analytic review of experiments examining the effects of extrinsic rewards on intrinsic motivation’ conclude that tangible rewards tend to have a substantially negative effect on intrinsic motivation and even when tangible rewards are offered as indicators of good performance, they typically decrease intrinsic motivation for interesting activities. Similar studies conducted by Yoon Jik Cho, Assistant Professor – University of Georgia and James Perry – Distinguished Professor - Indiana University, Bloomington, conclude that employees who are intrinsically motivated are three times more engaged than employees who are extrinsically motivated (such as by money).

The meaning of money (and hence it being regarded as a motivator or demotivator) is largely subjective and our relationship to money is highly idiosyncratic. If companies want to motivate their workforce, they need to understand what their employees really value — and the answer is bound differ for each individual. Motivating employees solely based on money will indeed turn out to be a herculean task.

Read full story

Topics: Life @ Work, Compensation & Benefits, #TotalRewards

Did you find this story helpful?



How do you envision AI transforming your work?