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5 Reasons Why Money Is a Poor Work Motivator

Nearly everyone believes that money is the best motivator, and people can indeed be motivated by money, but here are some reasons why bosses might want to re-consider using money as a work motivator.

1. We Don’t Use Money Efficiently. This is a bit complex. Most employees are paid for time (hourly, weekly salary), not performance. In reinforcement terms, this is a fixed interval reward system. We know, from research, that paying people for their time, rather than paying them for performing work behaviors, is inefficient. Commissioned salespeople work hard. Why? Because they are paid on a variable ratio schedule – the more sales pitches they make, the more sales (and the variable part means they never know when they are going to hit pay dirt!). So, money, for most workers on hourly/salary isn’t highly motivating.

2. Most Raises Aren’t Substantial Enough to Be Motivating. Research on motivational thresholds suggest that for a pay raise or bonus to actually lead to an increase in motivation and performance, it needs to be substantial – at least 5-7%. Most raises and bonuses aren’t that high, so they likely have minimal motivational impact.

3. Money May Not Be Your True Motivator. Money is correlated with power and status. Some people are motivated more by the power than the actual buying power of money. There are vast individual differences. Given a living wage, many people value other rewards – meaningful work, good colleagues, prestigious work – more than money.

4. We Don’t Make the Money-Performance Connection Salient. Partly because of the way that we pay/reward people (see #1 and #3), workers may not see the connection between the behaviors they perform and the money they receive. Again, paying people to be present at the job site, doesn’t ensure they are working. And, if we can’t measure their performance adequately, as a boss, you’re really screwed.

5. Money is Expensive. In most organizations, budgets are tight. Relying on money as an incentive is very limiting. Good bosses learn the value of other sorts of non-monetary rewards, associated with recognition, a valued parking spot, etc.

What are the motivational lessons for managers?

  • Learn what your employees value. Find out what motivates each of them, and use non-monetary rewards where appropriate.

  • Realize that monetary rewards need to be substantial in order to see significant change in levels of motivation

  • Time off, or flexibility in work hours, may be more reinforcing than money for some workers

  • Realize the value of social reinforcement. Thank workers on a regular basis. Be realistic and open about the limits of your ability to reward financially.

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