Money Is (And Is Not) A Performance Motivator

Money is a powerful tool to achieve our goals, and meet our needs and wants. Though we know that money cannot buy friends or love, can money buy an improved performance at the workplace? Many corporations are pouring financial incentives into their executive employees pockets in the form of bonuses, perks, and increased salaries in order to improve employee’s performance. Yet, how are financial incentives effective in motivating employees?

Bonuses and salary increases indeed can be a driving force to perform better – to accomplish more sales, improve quality, increase customer satisfaction, and develop innovative products. However, money as a motivator is not effective with everyone and not under all circumstances. This is what we know about the role that financial incentives play in employee performance and retention:

– Pay me enough to take the money off my mind
In general, money is effective only to a certain degree. If an employee is paid minimally and struggles to make ends meet, then financial incentives can be a more powerful driving force. However, when the salary reaches a threshold that is necessary to meet the basic needs of an employee (this threshold is different for everyone), then money is no longer a significant driving force. Recognition, appreciation, and positive work environment become more significant factors. A Maslow’s hierarchy of needs is a good illustration of this notion: when our basic needs, such as food and shelter are met, then we strive to meet our higher needs such as meaningful relationships, honor and recognition, and self-actualization.

– Recognize and appreciate me
Employees leave higher pay/no recognition jobs for lower pay jobs with more recognition. Employees often leave high-paying jobs and move into other fields to avoid ethical dilemmas. Thus, overall we choose recognition and positive work environment over a higher salary or other financial perks.

– Discover what else besides the money motivates me
Financial incentives are most effective with middle-age employee group. Younger employees (18-28) tend to be more motivated by career opportunities, autonomy at work, training and development, and recognition. Job security, positive work environment, and recognition are the most significant motivators for older employees (45 and above). While monetary incentives is of a more significant motivating factor to the middle career employees (29-45), this group can also be driven to perform by recognition and job security. Thus it seems that recognition, and not the money is a common denominator for all age groups.

From a different perspective, a study by MIT found that financial incentives are more effective when jobs performed require mechanical skills only, for instance assembling an equipment part at the conveyor. When jobs require cognitive skills such as decision making, critical thinking, communication, and innovative ideas, then monetary incentives not only are no longer effective, they can even decrease one’s performance. This notion is counterintuitive to large corporations that pour financial incentives for their executive teams. The other motivators that are indeed more effective than money once the job requires even a minimal level of “cognitive skills” are:

Autonomy – The urge to control or direct our own lives
Mastery – The desire to get better and better at something that matters
Purpose – The yearning to do what we do in the service of something bigger than ourselves

Daniel Pink creatively summarizes the human need for purposefulness at his video:

The Surprising Truth About What Motivates Us

When utilized wisely, financial incentives can be a driving force for employees to sustain or improve performance. Generally, financial incentives are most effective with employees performing mechanical jobs and for middle aged employees. In all cases, money alone is not a strong performance motivating factor. Financial incentives can best engage and motivate to perform better when they are backed up by recognition, appreciation, career development opportunities, and purposefulness at organization.