5 Things You Should Know Before You Try to Motivate Your Employees with Money

PUBLISHED ON: 08 July 2020 / READING TIME: 6 minutes

Man shaking hand with his female colleague at the end of a meeting

Do you think that financial rewards motivate employees to improve at work? I must say I disagree.

Companies that tend to make employees happier and more motivated by giving them rewards and bonuses are wasting their money. From my point of view, the promise of a bonus has never really done anything positive for me. When it comes to motivation, according to the research, rewarding people for better performance tends to reduce their performance. To learn more about this and read some real-life studies check out the book called “Payoff” by Dan Ariely.

I did a small research myself as well. So I recently asked the question on Twitter and LinkedIn:

“Have you ever received a bonus or any other monetary reward at work that made you happier at work and/or more motivated? If so, did the reward work for you?"

Man typing an email on his Macbook air

The replies revealed that the use of monetary rewards and bonuses at work can have a positive impact on the level of employees’ happiness and motivation.

Here are 5 lessons I learned from the replies I got.

1. Financial rewards have a better impact when they come as a surprise

One of the factors that appeared in the answers was that rewards are much more effective when they are surprising. This is an interesting finding because many companies tend to promise certain rewards when employees achieve certain goals. This makes rewards expected and significantly reduces their effectiveness.

Here are a few examples:

“My husband recently received an unexpected bonus for exceptional service. It was not asked for, not expected but welcomed with great warmth and happiness.”

“I have this clear recollection of my former manager handing me a gift certificate for lunch. Compared to my other bonuses and incentives this was nothing – in a monetary perspective and yet it made a huge impression the reason being that it was unexpected. He just wanted to appreciate my work.”

“Yes I have – the fact that it came out of the blue and was accompanied with a handwritten card from the bosses meant all the difference in the world.”

“One time. It came as a complete surprise (as opposed to those ‘entitled’ bonuses) + some nice personal words to go with the $$$.”

“It came as a surprise, so was a reward rather than incentive, and with a genuine, and face to face, conversation about why it was being given.”

2. Financial rewards have a better impact when they are connected to recognition

People also found rewards motivating when they came as a result of recognition for good and meaningful work.

“Yes, when it was clearly linked to the result we as a team had made. Everybody got paid from the hard work and because we succeeded. Being part of a result and seeing that in your wallet – I believed made us happier.”

“I was fortunate to work for an executive who understood the value of appreciation. The company didn’t have a bonus system as such (at least not for my level) – yet, from time to time, when I had done a particularly good job – he would come to my office, give me feedback on the extra value of this effort, an gave me 3 bottle of good red wine, paid for a pair of expensive sunglasses I was looking at, … smaller things like that.
He frequently gave med feedback on what I have done – but sometimes, it was just a tad more than that – and it made me feel good and truly appreciated … and really wanting to do what it takes to experience that again.
Oh – by the way – the executive was not my immediate manager, but the managers manager.”

3. Financial rewards work better when they are given as a good experience

Many people mentioned that they’d gotten rewards that were given as a good experience rather than as a monetary amount.
“At one of my workplaces the bonus system allowed me to study for an MBA. The reward system was built on pretty simple financial KPIs and depending on the result my employer would pay for the following year’s tuition….that affected my motivation positively.”

“Yes – anything you can share with your family is great! They also ‘suffer’ from us working hard :-)”

“Good question! I worked for 5 years for a Hotel group chain in the world, with work contracts of limited duration for each mission. One day, between two contracts, my manager offered me (to reduce my waiting of my working visa for Kenya and to thank me), a free flight where I wanted in the world. 10 days later, I left with my best friend for Mauritius island!! Beautiful reward of my work: to offer me a moment to rest!!!”

“Looking back I am more happy with a dinner my great boss gave me many years ago than a loyalty bonus of substantial value I was given many years later.”

“Does “go on vacation and bring me the receipts – you look like you need it” count? If so, yes – and what worked was the fact that this particular boss noticed that I was run down and ragged and did, in fact, sorely need a vacation, and that I was going to find an excuse not to go unless she did something about that, too. Also, I couldn’t really afford a trip at the time, so the money did actually matter, too.”

Woman with glasses sitting on a chair and smiling with laptop in front of her

4. Financial rewards make more sense when people need money

This is not some kind of a revelation - if employees need money, giving them money will make them happy.

“A friend of mine once told my managers manager that I was so tired (I was working 14-16 hours a day, seven days a week for 3 months) I had fallen asleep in the cinema watching the latest 007 movie (so, not something by krzysztof kieslowski). My manager’s manager said that he’d reimburse my ticket. I thought nothing of it, but got a note from him saying that there’s money for a dinner also, and then a 2.500 USD extraordinary payout. It made a huge difference and impact, I felt really appreciated (because money was a factor in my life back then). Today, it wouldn’t make any big changes.”

“Once, when I was young and working at my first real job. When Christmas arrived I got a box full of Christmas related food and snacks. This was also my first time living on my own – I expected nothing and was very happy to get food and snacks that I could not afford on my own back then.”

5. But many people claim that rewards don’t work for them

Interestingly, many people said that they had never received a financial reward in a way that worked for them. Sometimes, these financial rewards even made things worse. Here are some of the replies:

“I have also tried being incentivized where it felt more like a stressful factor than an incentive. I think – for me at least – the task has to hold meaning and the reward has to be at a reasonable level to balance out the extra effort.”

“Never. I was always rewarded with recognition, a new problem to solve and more responsibility. The pay was always more than I wanted to spend, and I never thought about it”

“Nope. Did once get one so small the entire team thought of giving it back. As a reward for our efforts it was actually a demotivating insult. No bonus is better than a belittling bonus IMO.”

“Yes, momentarily. Because the amount was substantial. Another time, yes, because I didn’t expect it. Both times, the feeling lasted about a week….. then it was ‘same old, same old’”

“Honestly, no, I don’t think I have. I’ve valued the money, and sometimes felt trapped in my role and retained by the expectation of receiving it, but not felt motivated by it. Achievement, thank yous, helping my team, making things better and purpose all motivate me more.”

“Only ever earned sales commission as a bonus, and never has it had any effect on my motivation or behaviour.”

“In the past I’ve received a surprise bonus at the end of a big project and it was a moment of happiness and motivation. “Hey, these people appreciate the work we did!” But when the next three projects finished up and no such bonus appeared, it was demoralizing in that the Board appeared to have lost interest or appreciation for the years of work that went into the projects.”

Key Takeaways

Companies can use monetary rewards to motivate employees and keep them happy. However, some companies use them as the only tool and this is doomed to fail.

four colleagues feeling happy and giving high five to each other after a job well done

If you realise that your employees need bonuses and monetary rewards, give them what they need because it will make them happy. If they don’t need money, maybe you should consider the following options:

  • Make the reward a surprise
  • Provide your employees with some valuable experience instead of giving them money
  • Reward your employees as a recognition for their good work

Ideally, try combining these three as it will make rewards much more effective. Also, note that if you give “bad” rewards they can actually have a negative impact and make employees less motivated. You certainly want to avoid that scenario.

By Alexander Kjerulf Partner

Alexander is one of the world's leading experts on happiness at work.

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