Why Money Is a Bad Motivator and What Works Better

What Motivates Employees? (Hint: It Isn’t Money!)

For years, businesses have operated under the assumption that money was the primary motivation for employees to remain with an employer, dedicate themselves to the company’s success and strive to produce exemplary work.
Managers have dangled merit increases, bonuses and other financial incentives in front of their employees in the belief that the pursuit of money would result in greater productivity, reduced turnover, improved product quality, better customer service and even lower rates of absenteeism.
If money is such a great motivator, why are so many companies still plagued by low productivity, high turnover, plummeting quality, disappointing customer service and high absenteeism despite the monetary carrots they have dangled before their employees?

The answer is simple: Money is not the best motivator for most employees.

screen-shot-2016-12-04-at-12-43-52-pm1. Researchers at Gallup compiled a study based on employee surveys, exit interviews and analyses of organizations and business units. They found that money ranked fourth on the list of the top five reasons that employees quit.
Money was a bigger issue for disengaged and actively disengaged employees (15 percent and 13 percent respectively). Money was also an issue among employees who believed that their employer did not value them and those who felt that their coworkers were not handling an appropriate amount of work. (1)

2. The “SHL Workers and Good Management Study” asked respondents what inspired them to work harder. The study found that only 20 percent of the workers surveyed reported that they found motivation in money and bonuses. (2)

3. Researcher Susan David conducted a study of business units that had extremely engaged employees. When she asked the employees what was behind their outstanding engagement scores, only 4 percent mentioned pay. (3)

Why Money Does Not Matter More

Naturally, employees are individuals who are motivated by different things. Even the same employee can have motivations that change over time. However, for more than 70 years, Maslow’s hierarchy of needs and its revised models have been used to demonstrate what motivates people. The concept is typically illustrated as a pyramid with five to eight tiers. Only after the needs defined in the lower tiers have been met does the motivation for the next tier become relevant. (4)


1. The bottom tier represents the basic physiological needs that are required for survival. These include sleep, shelter, food, warmth, air and water.
2. The second tier represents the desire to be safe. This tier includes needs such as freedom from fear, protection from the elements, law and order, stability and security.
3. The third tier includes the need to belong. It includes concepts such as being part of a group, friendship, trust, affection, acceptance and love.
4. The fourth tier covers the basic need for self-esteem. Esteem needs include independence, self-respect, achievement, respect from others, prestige and mastery.
5. In the revised models, the fifth tier represents cognitive needs. These include curiosity, exploration, the need for meaning, knowledge and predictability.
6. The revised models devote the sixth tier to the need for aesthetics. Needs include the search for and appreciation of beauty, form, balances and similar concepts.
7. The seventh tier in the revised models and the fifth tier in Maslow’s original hierarchy are devoted to self-actualization. Self-actualization involves self-fulfillment, realizing one’s own potential and pursuing personal growth.
8. The eighth tier in the revised models is labeled as transcendence needs. It involves helping others to reach self-actualization.

Reviewing the tiers, it is easy to see why some employees will not be motivated by money. However, deciding what will motivate different employees requires knowing your employees. To illustrate, a single parent struggling to provide for a family while working an entry level job may find money an effective motivator. However, as soon as he or she is secure in the knowledge that the children have everything they need, money will be less effective.

What Works Better than Money

In an ideal world, managers would know all employees well enough to accurately predict what they need. In companies with more than one or two employees, however, it is highly unlikely that the level of mutual trust and openness will be sufficient for this to occur.
This does not mean that it is impossible to find the right motivations, however. For all of their differences, humans share many common needs and desires.

1. People want to feel that their work is appreciated.

Behavioral economist Dan Ariely has conducted numerous studies on motivation. In one study:

  • He gave participants a piece of paper containing random letters and instructed them to find letter pairs.
  • The amount of money decreased with every round.screen-shot-2016-12-04-at-1-27-23-pm
  • The first group had to sign their sheets and give them to the experiment leader, who would look over the sheet before placing it in a pile.
  • The second group did not sign their sheets, and the experimenter did not look over their sheets before placing them in a pile.
  • The third group’s work was immediately shredded.
  • The third group wanted twice as much money to continue as the first group, and the second group wanted almost as much as the third group. (5)

The SHL study also found that having their work appreciated was a great motivator. Approximately 17 percent of the respondents stated that having the company acknowledge their work inspired them to work harder. (2)

Recognizing an employee’s performance can be a powerful motivator. A sincere compliment would work best, but even an acknowledgement of the employee’s efforts is better than silence.

2. People want to see the fruits of their labor.

In another study, Ariely had participants build Lego characters.

  • The pay declined for every character built after the first one.screen-shot-2016-12-04-at-1-30-03-pm
  • In the first group, the creations were placed under the table to await disassembly when the experiment ended.
  • In the second group, the creations were disassembled immediately and in front of the participants.
  • On average, the first group completed an average of 11 creations before quitting, but the second group only averaged seven. (5)

Although the participants knew that their creations would be disassembled eventually, seeing the fruits of their labor for a short time substantially improved their productivity. It gave them tangible proof that their work had meaning.


3. People want autonomy.

A study led by Greg A. Chung-Yan of the University of Windsor found that the amount of freedom that employees have to handle a job their way can significantly impact their performance. Although there are some jobs that require strict compliance with a particular method or approvals at every stage, many tasks can be completed in a variety of ways. Allowing employees to choose the method that is most efficient for them can be an effective motivator. (6)

Employees who can use their own skill sets and creativity to succeed are being motivated from within. Their success is directly tied to their own initiative and talent, allowing them to have greater pride in the results.


4. People want to be challenged.

In the SHL study, 22 percent of the respondents stated that wanted to take on more responsibility. (2) In another study conducted by Dan Ariely:

  • He provided participants the materials to build their first origami product.
  • The first group received instructions, making their work easier and their products prettier.screen-shot-2016-12-04-at-1-33-37-pm
  • At the end, the builders were asked how much they would pay for the product, and the same question was posed to a group who had only observed.
  • The builders in the first group stated they would pay five times as much as the amount stated by the observers.
  • However, the second group valued their products even more highly than the first group even though the observers considered them less valuable. (5)

The more difficult it is to perform a task, the more pride people feel when they accomplish the task. Employees tend to tie the value of their work to the effort they expended. Limiting employees to simple, easily mastered tasks can rob them of their motivation to contribute to the company and make them feel unappreciated.

5. People want to feel a sense of belonging.

A sense of belonging can come from being a member of a team, contributing to the well-being of others or being a good fit for the company culture.

In the SHL study, the motivation cited by most respondents — 26 percent — was the support of colleagues and workplace culture.

(2) Adam Grant, a researcher, author and professor at Wharton College, found that the sense of belonging can extend to a desire to help others. In a study he conducted:

  • He placed signs at a hospital’s hand-washing stations.screen-shot-2016-12-04-at-1-37-53-pm
  • Half of the signs reminded nurses and doctors that hand hygiene protected them from catching diseases,
  • and the other half reminded them that hand hygiene protected their patients from catching diseases.
  • After measuring the amount of hand sanitizer and soap used at each station, he found that 45 percent more was used at the stations referring to patients.

(7) In the Gallup study, employees who did not feel connected to the company’s mission or its leadership were more likely to quit than those who felt connected. (1)

Relationships in the workplace can be powerful motivators. Whether the actions manifest as not wanting to let others down or a desire to do their part for the greater good, a sense of belonging increases the employee’s happiness.

Specific Actions to Motivate Employees

Just as employees are individuals, every organization is unique. This means that not every approach is suitable for every situation.

However, here are some actions that can help motivate your employees.

1. Be fair. Employees who perceive that you are “playing favorites” are not going to be highly motivated.
2. Give employees sincere praise frequently. Let them know that you appreciate the fact that they worked over the weekend to conduct an inventory, for example, or that you found the new format used for a report to be a great improvement.
3. Host company parties. Group activities can help build camaraderie and promote a sense of belonging. Throw monthly birthday celebrations for employees, host a company picnic or organize a potluck luncheon.
4. Recognize the personal and professional accomplishments of employees. Include a blurb in the company newsletter, take the employee to lunch or just make an announcement.
5. Find out what employees really want. Allow employees to respond to a survey anonymously or put up a suggestion box. Some employees might be motivated by flex time, others by opportunities to cross-train and still others by increased mentoring. Once you know what they want, you can decide whether it is possible to provide the opportunities they prefer.
6. Take a genuine interest in your employees, especially in their career goals. Discuss possible paths they can take to move up in the company, for example, or inquire about their progress if they are taking night classes to improve their skills.
7. Allow employees to take responsibility for their own work. Make sure that they understand the goals, any relevant deadlines and the quality of work they need to produce, but let them decide on the order of tasks and the methods they use to accomplish them.
8. Give employees the opportunity to prove themselves by giving them special assignments that will challenge them. If they succeed, praise them. If they fail, refrain from criticism; ask them what they would do differently next time or similar questions that will allow them to identify their own mistakes.

In conclusion, there are many ways to motivate employees, but for most, money is a bad motivator. If you still doubt that fact, ask several parents two questions.

screen-shot-2016-12-04-at-1-43-23-pm1. Without a safety net or harness, would you walk across a 6-inch board suspended between two skyscrapers for $1 million? Most people will say that they would not take the risk.

2. Without a safety net or harness, would you walk across a 6-inch board suspended between two skyscrapers to save your child’s life? Most parents would.

You see, despite the cynicism that has become increasingly prevalent in modern business, there are simply some things that many people are not willing to do for money that they would readily do for a different motivation.

Knowing what your employees want is at the core of a good company culture and workplace climate.
EPIC By Clarity Wave can help you find out what people want and chart a clear roadmap to help you achieve a more productive team.
Schedule a demo with us today and find out how we can help your company increase your employee engagement.

(1) http://www.gallup.com/businessjournal/106912/Turning-Around-Your-Turnover-Problem.aspx
(2) http://www.incentivemag.com/Strategy/Engagement/Study–Money-Not-a-Top-Motivator/
(3) https://hbr.org/2014/07/make-sure-your-employees-emotional-needs-are-met
(4) http://www.simplypsychology.org/maslow.html
(5) http://ideas.ted.com/what-motivates-us-at-work-7-fascinating-studies-that-give-insights/
(6) http://www.businessnewsdaily.com/75-autonomy-keeps-employees-happy-study-finds.html
(7) http://www.nytimes.com/2013/03/31/magazine/is-giving-the-secret-to-getting-ahead.html?ref=magazine&_r=0&pagewanted=all