Is money a good motivator?

The idea that the more you earn, the happier you’ll be is deeply rooted in human society, and, in most of the world, money is still considered the most effective way to motivate employees. But while salary does have a significant impact on motivation and happiness, the relationship between them is far from straightforward.

In 2022, Gallup surveyed 13,085 U.S employees to determine the key factors they consider when evaluating whether or not to take a new job at a different organization. Of the six factors that emerged from the study, a significant increase in income or benefits came top, with 64% rating this ‘very important’, while greater work-life balance and better personal well-being was a close second with 61%.

Comparing the 2022 results with a similar survey they conducted in 2015, Gallup noted that pay had increased in priority among respondents from No.4 to No.1. They attributed this largely to the more recent survey taking place during a job seekers’ market, which gives employees the confidence to seek out higher pay.

However, a separate study was conducted by Gallup as a part of their ‘State of the Global Workplace: 2023 Report’, this time among employees who were ‘quiet quitting’ their jobs. To the question, ‘What would you change about your workplace to make it better?’, 41% responded ‘engagement or culture’, while only 28% said ‘pay and benefits’.

In the first study, the result seems to have come about largely due to economic reasons: people wanted more money because the power of negotiation was in their favor. Or to put it another way: there was more money on the table, so they simply asked for it.

In the second study, people who were disengaged from their jobs were asked what it would take to make their work life better. And more people pointed toward changes in their work culture, such as more autonomy, recognition, openness, and progression.

In short: the question matters. Ask people if they want more money, and the answer will invariably be yes. Ask people what makes them feel happier or more engaged or more connected to their work, and the answer might be completely different.

Does more money make us happier?

So what connection does pay have to engagement, our sense of well-being, and job satisfaction? According to a meta analysis carried out by Tim Judge and colleagues, where they reviewed 120 years of research with a combined data set of more than 15,000 individuals, the connection between pay and job satisfaction is very weak. The results were virtually identical across cultures (there was no significant difference, for example, between the U.S., India, Australia, the U.K., and Taiwan), and also across different pay grades.

Another study was conducted by a team of researchers who wanted to discover if a relationship existed between income and subjective well-being. Subjective well-being is a self-reported measure of how people experience and evaluate their lives, and the researchers found out that there was indeed a positive association between annual income and subjective well-being. However, while earning more (rather than less) money does seem to make people happier, the impact it has on subjective well-being is minor after basic needs are satisfied.

As social psychologist and vice president of the Goethe University Frankfurt Professor Rolf van Dick explains, “I know of some studies, one of them conducted in the US not long ago, that have looked at the relationship between pay and overall satisfaction, and they have seen a linear trend between pay and satisfaction, but only up to a certain amount.” After this, “the relationship turns and more money does not make people happier.”

So while pay is undoubtedly a crucial factor, on its own it is insufficient to achieve higher levels of engagement, better job satisfaction, and a greater sense of well-being.

When pay is a good motivator

There are, however, specific instances where extrinsic rewards such as pay could be effective in motivating someone. In the 2014 work “Intrinsic Motivation and Extrinsic Incentives Jointly Predict Performance: A 40-Year Meta-Analysis” by Christopher P. Cerasoli, Jessica M. Nicklin, Michael T. Ford., the research team discovered that, “Tasks that are straightforward, highly repetitive, and perhaps even less inherently enjoyable, should be more closely linked to extrinsic incentives. For example, linking pay to performance has been found to improve productivity on relatively straightforward tasks, such as tree planting.”

In the 2017 study “Do Intrinsic and Extrinsic Motivation Relate Differently to Employee Outcomes?” by Bard Kuvaas, Robert Buch, Antoinette Weibel, Anders Dysvik and Christina G.L. Nerstad, researchers noted that “simple and standardized” tasks show higher levels of performance when extrinsic motivation is used. In addition, external incentives have also been shown to be effective in motivating people to participate in tasks in which they previously had no interest, or to motivate them to learn new skills or knowledge, at least in the short term.

Conclusion

Pay is the fundamental reason most people work, primarily because it helps fulfill their basic needs. But while making more money does bring a certain level of satisfaction and happiness, its positive effects start to diminish once a person’s basic requirements for a stable and happy life are satisfied. And while extrinsic motivators such as pay and bonuses can be effective in certain situations, it is unwise for employers to assume that more money is the answer to how one can motivate employees better and unlock their potential.

According to Professor Teresa M. Amabile, a Baker Foundation Professor at Harvard Business School, extrinsic motivators such as pay are most potent when used to complement intrinsic motivators. In her article “How Your Work Environment Influences Your Creativity” for UC Berkeley’s Greater Good Magazine, she explains that, “Extrinsic motivators that either allow a person to be more engaged, or confirm their competence, in something they are already keen to do, can synergistically add to intrinsic motivation and creativity. That delicate balance is what workplaces should be aiming for.”