Is money an incentive?

How much should people earn? Even if resources were unlimited, it would be difficult to stipulate your ideal salary. Intuitively, one would think that higher pay should produce better results, but scientific evidence indicates that the link between compensation, motivation and performance is much more complex. In fact, research suggests that even if we let people decide how much they should earn, they would probably not enjoy their job more.

Even those who highlight the motivational effects of money accept that pay alone is not sufficient. The basic questions are: Does money make our jobs more enjoyable? Or can higher salaries actually demotivate us?

Pros to Using Monetary Incentives to Motivate Employees

Let’s start with a list of some of the benefits of using incentives to motivate employees:

• It is an easy and seemingly straightforward way to influence specific behaviours.
• Monetary incentives often do achieve short-term goals for businesses, such as increasing productivity or reducing problematic behaviours.
• An incentive scheme can improve employee attitudes and improve the working atmosphere.
• It can be a way to give extra compensation to top performers when there are constraints that don’t allow raises or promotions to be used.
• An incentive program can also be used as a recruiting tool.
• Incentive programs (if implemented well) can make individuals feel that they have an element of control over their level of income.

Cons to Using Monetary Incentives to Motivate Employees

There’s a downside as well. Here are some of the potential pitfalls to using a monetary incentive program:

• When used continually, a bonus or other incentive can come to be seen as an entitlement rather than a motivator.
• It’s easy to get unintended consequences if an employer is not clear enough on the behaviours it is hoping to incentivize. The classic example of this is creating an incentive (or commission) for salespeople based solely on revenue generated, without any regard to profitability. Goods sold at a loss are not usually beneficial!
• When monetary incentives are tied to group performance, it can create frustration if there are perceptions of unequal contribution among group members.
• Implementation comes with costs. It takes time and effort to set up and track incentive programs and ensure they’re paid out accurately.
• Monetary incentives may be less effective than non-monetary incentives, especially over time.

Finally, a research shows that employees’ personalities are much better predictors of engagement than their salaries. The most compelling study in this area is a large meta-analytic review of 25,000 participants, where personality determined 40% of the variability in ratings of job satisfaction. The more emotionally stable, extraverted, agreeable or conscientious people are, the more they tend to like their jobs (irrespective of their salaries).

But the personality of employees’ is not the most important determinant of their engagement levels. In fact, the biggest organizational cause of disengagement is incompetent leadership.