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Is Money the crucial incentive to work motivation?

The significance of money as a motivator has been consistently downplayed by most executives. They prefer to point out the value of challenging jobs, goals, participation in decision making, feedback, cohesive work and other non-monetary factors as stimulants to employee inspiration.

We disagree otherwise here – that money is the crucial incentive to work motivation. As a medium of exchange, it is the vehicle by which employees can purchase the numerous need-satisfying things they want. Furthermore, money also performs the function of a scorecard, by which employees assess the value that the organization places on their services and by which employees can compare their value to others. Money’s value as a medium of exchange is obvious.

People may not work only for money, but remove the money and how many people would come to work? A study of nearly 2500 employees found that while these people disagreed over what their primary motivator was, they unanimously ranked money as their number two. This study reaffirms that for the vast majority of the workforce, a regular pay-cheque is absolutely necessary in order to meet basic physiological and safety needs. Some evidence demonstrates that money may not be the only motivator, but it is difficult to argue that it doesn’t motivate! Money can motivate some people under some conditions, so the issue isn’t really whether money can motivate.

The answer to that is, “It can!” The more relevant question is this: Does money motivate most employees in the workforce today to higher performance? The answer to this question, is “no.” For money to motivate an individual’s performance, certain conditions must be met. First, money must be important to the individual. Second, money must be perceived by the individual as being a direct reward for performance. Third, the marginal amount of money offered for the performance must be perceived by the individual as being significant. Finally, management must have the discretion to reward high performers with more money. Let’s take a look at each of these conditions. Money is not important to all employees.

High achievers, for instance, are intrinsically motivated. Money should have little impact on these people. Similarly, money is relevant to those individuals with strong lower-order needs; but for most of the workforce, lower-order needs are substantially satisfied. Money would motivate if employees perceived a strong linkage between performance and rewards in organizations. Unfortunately, pay increases are far more often determined by levels of skills and experience, community pay standards, the consumer price index, and the organization’s current and future financial prospects than by each employee’s level of performance. For money to motivate, the marginal difference in pay increases between a high performer and an average performer must be significant. In practice, it rarely is.

How much motivation is there in knowing that if you work really hard, you are going to end up with $20 a week more than someone who is doing just enough to get by?. In most organizations, managers have a very small area of discretion within which they can reward their higher performing employees. So money might be theoretically capable of motivating employees to higher levels of performance, but most managers are not given enough flexibility to do much about it.