Rewards & Recognition, Talent Management

Cash is King, But Here Are 3 Reasons Why it Doesn’t Motivate Employees

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I’ve written often about why cash not a good method for motivating employees (including my post yesterday as well as these older ones on cash bonuses incenting employees to quit and even sue).

Edward Deci, a human motivation psychologist at University of Rochester, is one of the experts in the space who gives the evidenced-based reason for why. This recent article on CNBC includes several excellent points from Deci, which I’ve sorted.

3 reasons cash fails as an employee motivator

  1. Employees feel like they’re being coerced or controlled, losing their self-motivation. “Employees need autonomy and respect in order to feel motivated. When money is used as bait, it can undermine empowerment. In those situations, Deci says that employees feel controlled and lose their self-motivation. An office that demands grueling hours in exchange for quarterly bonuses might convince employees to do the work, but it will likely be lower quality.”
  2. Employees begin to expect the reward as an entitlement. Says Deci: “Unless you’re extremely careful with how you use rewards, you get people who are just working for the money… We need to compensate people fairly, but when we try to use money to motivate them to do tasks, it can very likely backfire on us.”
  3. If cash is the goal, employees often focus on the end result and not the means to get there. “If the activity is an instrument to the reward, then they’ll try to do it as easily as they can,’ Deci said. At the extreme, think of Enron employees inflating stock prices or Wall Street brokers selling bad mortgages.”

Focus on HOW employees reach their goals

Cash compensates; it doesn’t motivate. Because cash is the currency of compensation, when you use cash for anything else (especially at lower value levels), people quickly come to think of it as part of compensation – not a true “bonus.” That’s why this final piece of advice from the article is critical to understand:

As a leader, emphasize the broader goals, such as the company’s mission, and pay attention to how your employees reach their goals. Reward the people who embody your values most fully, and be clear that those are the behaviors you want to reinforce.”

Does your organization use cash as a motivator? Do you see these three pitfalls? What others have I missed?

You can find more from Derek Irvine on his Recognize This! blog.

The VP of Client Strategy and Consulting at Globoforce (www.globoforce.com), Derek Irvine is one of the world’s foremost experts on employee recognition and engagement, helping business leaders set a higher vision and ambition for their organizations. As a renowned speaker and co-author of Winning with a Culture of Recognition, he teaches companies how to use recognition to proactively manage company culture. Contact him at irvine@globoforce.com.
  • Ron1007

    Herzberg’s motivation-hygiene theory in 1966 debunked pay as a motivator and his research still holds. People are motivated by things other than money. The problem with cash as outlined in this article is that the way in which money or cash is used has a great deal to do with how employees see an organization’s compensation program. Many studies also show over the years that in companies who have what they believe are ‘pay for performance’ programs, they truly are not because the difference in pay between the high performers and the average performers is not sufficient enough to communicate these differences. Thus, unless cash is used effectively along with other rewards, you are wasting your time. Total compensation should include a wide variety of reward systems that include both cash and non-cash features. Try as we will, we never seem to be able to get it right. I wonder why?

  • Indika

    Values are more important than cash;
    therefore always employer must recognize their own assets in the organization
    and also their contribution need to be recognized and rewarded. By motivating
    assets giving opportunities to share their innovative ideas, talents and skills
    with the organization; assets can have a greater opportunity to climb up in
    their career ladder. On the other hand organization can have a greater
    opportunity to find new opportunities to expand its business to increase its
    market share. This will be definitely on win-win concept. Eventually both
    parties will be happy and achievers…!

  • http://www.facebook.com/christy.hall.731 Christy Hall

    I remember hearing someone wise say once that money is necessary as a motivator, in that you need to pay your people “enough.” If they feel underpaid and under-appreciated, they will lack motivation. But once you pay someone enough, the move to pay them more (though I’m sure they’ll like it) won’t necessarily result in higher motivation.

    Christy Hall
    The Soderquist Center for Leadership & Ethics
    soderquist.org