The advantages and disadvantages of using money to motivate employees
At first glance if might seem obvious that in a capitalistic market such as that for labour, money is the main motivating force for workers. Offering extra cash, whether through pay rises, bonuses or performance-related pay, can indeed help make staff more productive. However, non-monetary factors mean the benefits can be limited.
Advantage: quantifiable for employees
Giving people additional money such as bonuses is an easily quantifiable benefit. People who stand to make an extra £100 know exactly what they will get and how they can use that money. This is in contrast to rewards such as prestige, satisfaction or tangible gifts. With non-money rewards, employees are less able to tell in advance how significant the reward will be, and different employees will see the reward as a differing level of incentive.
Advantage: quantifiable for employers
Motivating people through extra cash means an employer can tell in advance how much the process is costing and can readily measure if the resulting benefits to the company such as enhanced productivity are paying off. In some cases the employer knows the precise costs in advance, such as when offering overtime or a pay rise. In other cases the employer only knows the basis of the costs, such as with performance related pay or bonuses. This means employers should make sure the potential increased costs are closely aligned to an increase in revenue.
Disadvantage: leisure cost
In some cases, the lure of additional money will be limited to employees if it means working extra hours. This is because rationally thinking employees will weigh up the extra money from working another hour and decide if it outweighs the benefit they would get from spending that time on leisure activities, with family, or for other personal use. In most cases, the money it takes to get people to work an extra hour will be higher if the employee already works a lot of hours or is highly paid.
Disadvantage: other factors
Other factors besides money may be as or more important in motivating staff; the absence of these factors may mean any benefit from offering extra cash is limited or even wiped out. A survey for the Federal Reserve Bank of Boston found most employees valued being recognized for their efforts at work and would work harder if they got more recognition. The same survey found money was often a less important motivating factor than if the worker felt engaged by the company and its work, for example if he or she would personally recommend the company's products.