Many business owners use money as the only form of reward to upkeep employees’ motivation, but end up frustrated that it doesn’t turn out the way they expect it to be. While everyone loves a little extra cash, the effects of monetary rewards are not as simple as what you think!
Enough is never enough
The hedonic treadmill (Eysenck, 1990) is a psychological phenomenon of which people often return to their initial levels of happiness after some time, regardless of what happens to them. Accordingly, as a person makes more money, expectations and desires rise in tandem. Hence, monetary rewards often only give people a momentary boost in satisfaction, but has no lasting effect on motivation.
Money has little motivating effect
The two-factor theory (Herzberg, 1959) proposed that money is a hygiene factor, not a motivating factor. What it essentially means is that the lack of money will make a person unhappy, but more of it does not necessarily make a person happy. To make a person happy, motivating factors need to be considered instead. This is also validated by the National Workplace Happiness Survey (2014) in Singapore.
Money may reduce intrinsic motivation!
Using money to reward a task has the tendency to shift one’s motivation from intrinsic to extrinsic (Deci & Ryan, 1999). If someone voluntarily puts in extra effort to complete a task, rewarding the person with money will actually create an expectation for the task to be rewarded with money in future. In short, once you pay for a task, you have to always pay for it.
Monetary reward is important as it reflects a person’s worth, but companies should not solely rely on them as a motivator in encouraging good performance. Rather, consider investing in intangible motivational aspects instead, which are often equally impactful and less costly.