Does Money Really Motivate People in the Workplace?

We’ve talked before about Dan Ariely’s Payoff, which tries to answer the question of what motivates people. According to Ariely and the studies he cites, motivation is best when it comes from within. When people feel engaged, important, and excited about a task, they’ll perform it to the best of their ability, regardless of any external incentives offered to them.

That’s the theory, anyway, but how do we actually motivate people in the workplace? Typically, instead of focusing on building up the intrinsic motivation of workers, companies use incentives like cash bonuses, vacation packages, and other rewards to extrinsically motivate people. These incentives are ubiquitous throughout the global workforce, and put a significant dent in companies’ annual budgets. But do these rewards even work? Does a metaphorical carrot on a string really push people to work harder?

The short answer? No.

Motivating with money is counterproductive and unsustainable

It’s difficult to name the best way to motivate people in the workforce because different workers, jobs, and companies all have unique goals and, by extension, unique needs. The motivational needs of the CIA, for example, are going to be wildly different from the motivational needs of a Girl Scout troop in rural Indiana, or from a tech startup in Paris.

However, more studies are being done to help us solve the extremely complex riddle of motivation. Dan Ariely documents one in Payoff that he conducted with workers at an Intel manufacturer in Israel. Workers who made semiconductor chips were divided into four categories. Each received certain rewards if they met or exceeded their daily quotas. One group received a cash bonus. Another received a voucher for a free pizza. The third received an encouraging message from their employer. The fourth control group received nothing.

It’s probably no surprise that all three incentives had boosted the productivity of workers more than that of the control group, but which incentive worked best? After the first day, the pizza voucher and verbal compliment resulted in nearly identical boosts to productivity, with the cash bonus trailing slightly behind. On the second day, however, workers in the cash bonus group actually performed significantly worse than even the control group!

Though productivity slowly increased for the rest of the week, by the end of the four-day work cycle, the money group was still less productive than the control group, and at great cost to the employers paying out those bonuses.
Conversely, the compliment group had the largest boost to performance overall, increasing engagement even on days when there was no bonus, and at no cost to the employer other than a few moments of their time.

Want your employees to work harder? Pay them… in compliments!

We assume that people work exclusively for pay and that greater pay will lead to greater performance. This assumption, however, couldn’t be further from the truth! In fact, assigning a monetary value to work performance can have the opposite effect on productivity. Cash bonuses leave workers disillusioned and feeling like their time and efforts are worth money and nothing else.

The compliment group of the Intel experiment, however, worked harder and performed better than any other group, even though a compliment has no market value. Instead, it has sentimental value. Compliments leave people feeling good about themselves and wanting to improve more over time. They feel connected to their place of employment and like their job has meaning. When we feel like our work has meaning, we’re more likely to work harder for longer. A sense of purpose makes us want to work for our own personal satisfaction.

Putting a dollar sign on someone’s effort reflects what Ariely calls market norms, which favor direct, quantifiable, and equal transactions, in this case of money and labor. However, the workplace itself is not a market. The people who work there aren’t commodities to be bought and sold. People don’t operate on market norms. We are social creatures who follow social norms, which emphasize gratitude, reciprocity, and long-term relationships.

Currently, employers try to motivate their employees with external incentives, but it’s not working. Worker engagement and productivity is lower than it’s ever been. However, extrinsic motivations, particularly money, simply don’t work in the long run. Instead of trying to motivate employees externally, companies should consider giving employees the means to motivate themselves through trust, goodwill, and the occasional compliment.

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