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Inadequate pay does affect performance, no question about it. But as soon as money is enough to spare money-related anxieties, such as paying the bills, is there any theory or anecdotal evidence that increasing financial reward has any motivating power at all?

I already went through a number of posts on this forum, of people complaining of lack of interesting work/ professional growth/ recognition of individual contribution, but not lack of salary increase on top of an already satisfactory income.


Some thoughts:

  • my own feeling is that once you reach a plateau in your career, increasing financial reward may have the power to keep you at that job (for some more time), but would hardly bring inspiration for better performance;
  • of course, different types of people get motivated in different ways. Probably there's a type of people who prefer stability and predictability in their work and who feel completely comfortable doing the same thing over and over. But even for this (presumable) type of people, good performance would likely translate into remaining loyal and not slacking with their mundane work. Then, would it be necessarily increasing financial reward what keeps their loyalty and perseverance?
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  • Do you have some specific kind of job in mind?
    – Igor G
    Sep 21, 2022 at 9:37
  • @ Igor G - not really, I think the case is relevant across all professions.
    – drabsv
    Sep 21, 2022 at 9:55
  • Consider Marginal utility
    – Egami
    Sep 21, 2022 at 11:26
  • You also need to consider the difference between "motivation" and "incentive". They are different. People have different motivations and respond to incentive differently.
    – David R
    Sep 21, 2022 at 14:41
  • @ David R - I am definitely speaking about motivation. I am speaking about long-term behaviours, therefore excluding incentives by definition.
    – drabsv
    Sep 21, 2022 at 19:44

8 Answers 8

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There are two cases to take into account:

  • Salaried: The output doesn't influence the pay. Eventually it may influence yearly raise. It's probably that money is a initial factor of motivation but after this it becomes more a factor of retention than motivation
  • Per hour/per commission: Money can become a motivational factor to work more/better. Of course it depends of the profile of people, some will work enough to achieve just enough to not be fired, some more but enough to pay what they want (new house, hobby, etc.), some workaholic will try to earn as much as possible.

If we except the workaholic, and if we refer to Maslow pyramid, after their needs are satisfied most people will either try to earn more for the same working condition or the same thing for better working condition.

If retention is the goal, paying the market is enough, working condition are more important. If motivation is the goal, people are motivated by different thing. Some are motivated by money, some by learning, some by social credit.

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is there any theory or anecdotal evidence that increasing financial reward has any motivating power at all?

my own feeling is that once you reach a plateau in your career, increasing financial reward may have the power to keep you at that job (for some more time), but would hardly bring inspiration for better performance

As always, it depends. In this context, it depends a lot on the current financial state of the individual. It often depends on how the financial reward is achieved. It often depends on the size of the increase. And it depends on your definition of motivation.

Increased financial reward can motivate many to take a new job. That's particularly true for folks who don't have "enough" money, whatever "enough" means to them.

Increased financial reward can motivate many to stay in their existing job, even if they could make more by going elsewhere. In many cases pay is only one of many factors in job satisfaction, and job comfort plays a big part.

Increased financial reward in the form of a performance bonus may motivate some to better performance.

But overall increased financial reward in the form of a pay raise or anticipated pay raise doesn't motivate most to better performance.

This might help: https://hbr.org/2013/04/does-money-really-affect-motiv

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  • I can be perfectly happy at my job, but still feel galled if a coworker of mine leaves and gets a 30% pay raise. I'm going to think twice about sticking around if there's that much money to be gained by leaving Sep 21, 2022 at 12:26
  • @Joe Strazzere you have not cited any evidence supporting your statements, though?
    – drabsv
    Sep 21, 2022 at 13:46
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Motivations are (in random order) an interesting job, a job that is free of conflicts, a job that is safe, a job where I am appreciated, and a job that pays good money. The last one isn't that important to me personally, but I have a family, and I'd prefer a nice holiday to a cheap one, and I prefer being able to buy things for my wife that she wants. The money also adds to the "I am appreciated" part.

A manager or boss who creates an unpleasant working environment is by far the biggest turn off. That kind of person makes employees run away. And the ones that run first are the ones who feel they are good enough to find a better job easily. (I'm sure when you want to know what motivates people, you'll also want to know what demotivates them). Making people feel that they are appreciated is motivating and it is free. Making the job interesting is also something that you may be able to do for free. A free coffee machine or drinks machine will give the impression "the company cares for its employees" which is very motivating, at very low cost.

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Inadequate pay does affect performance, no question about it. But as soon as money is enough to spare money-related anxieties, such as paying the bills, is there any theory or anecdotal evidence that increasing financial reward has any motivating power at all?

Depends on what you mean by this. It'll definitely secure more compliance/extrinsic motivation as long as the rewards are being offered and that's about it. It doesn't promote intrinsic motivation. In other words, people will do the required tasks to get the reward, not because the they actually want to do the task any more than they did before.

As a personal example, I recall participating in a wellness program where I reached the maximum possible reward about halfway through the year, at which I stopped participating in the program. While I was doing the program, I did do somewhat more than I would have otherwise, but again, this didn't really result in any changes in my behavior after the program.

It could also unintentionally end up incentivizing poor or dishonest behavior; for example, Wells Fargo gave financial incentives to recruit new customers, which resulted in people creating fake accounts to meet their targets. The United States Department of Veterans Affairs tied managers' bonuses to them meeting certain KPIs; there was a rather serious scandal where managers were doctoring records to cover up the long wait times in many facilities.

I'd strongly recommend reading the book Punished by Rewards by Alfie Kohn and Why we do what we do by Edward Deci for more details.

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Money and stability are the main factors motivating most people I would think. It's why I know a cleaner who has done the same job for decades. She's not in love with cleaning, but she does need to provide for her kids.

In any job after a long time it's working on autopilot and experience. So not much motivation is necessary. The only motivation needed is to get out of bed and go to work for the day. And a paycheque provides that.

good performance would likely translate into remaining loyal and not slacking with their mundane work. Then, would it be necessarily increasing financial reward what keeps their loyalty and perseverance?

No just normal work ethic and experience is enough. The work is not onerous and they're professionals at it, having done it long enough to do so at peak efficiency.

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No one is actively looking for a pay cut.

One of the main reasons for a company to pay an employee "more than they need to be happy" or "above market" is to reduce the risk of attrition.

Being "overpaid" does not necessarily increase the motivation in day to day work (and hopefully doesn't need to), but it 's a strong motive to stay, simply because it makes it hard for other companies to put a compelling offer together.

This can be a strong decision factor if a more interesting and intriguing job pops up: if the new company can't match the current comp, the potential pay cut creates a very strong emotional barrier, even if you don't actually need the extra money.

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Everyone is different, but some people are absolutely motivated by money.

This is a key hiring point in sales people. You want people who make commission (a percentage of sales) to be highy motivated by money.

The complete list of what motivates people and why is probably an encyclopedia. But in some cases, compensation is critical.

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    It changes with context too. When I first came to Germany the motivating factor was doubling my wage overnight. I was poor and suddenly I had more than I needed. But now if someone offered to double my wage by moving somewhere where I would be lost and alone again, I would say no.
    – RedSonja
    Sep 22, 2022 at 7:26
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There's a few "not being paid enough" posts around, but in general I think people don't ask about it because it's self evident for them. Many posts describing personnel issues also have a mention of "if you paid more you'd have fewer problems retaining motivated staff" or some equivalent in the answers.

Of course if you directly want to use financial reward to increase someone's performance then the way to do it is some kind of performance bonus tied to concrete metrics, preferably short term ones so there's direct feedback.

In practice, few people are willing to put in hard effort for the possibility of maybe getting a 5% raise when they can jump to a different job and get 30% or more, so in a sense you're right that people aren't long term motivated just by money, but mostly because they just don't believe they'll actually get that money in the long term.

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