Financial Motivation

Financial motivation is the use of monetary incentives to encourage desired behaviors, typically in the workplace.

The Basic Idea

Did you receive a bonus this year? How about a raise? Maybe you got some stock options? Regardless of the method, one thing remains constant: our work is often rewarded with the promise of extra cash. This is called financial motivation: the use of money as an incentive to promote a certain behavior. 

The equation seems like a no-brainer: more money = more motivation. While getting a bonus feels great, behavioral science argues more financial motivations aren’t always effective. In fact, they can sometimes harm employee motivation, if done incorrectly. 

Financial motivation has been around as long as money. To get people to do work, they usually have to get a monetary reward. However, the “carrots” we’ve used to drive employee performance have changed throughout history.

Prior to globalization, employee performance was measured through loyalty. In this context, additional pay as a reward made sense. It was basic reciprocity: people saw their work as a means to an end, and thus were provided more ‘ends’ for harder work. It was a win-win.¹ 

But since then, the world has grown increasingly uncertain. Companies are running on thinner and thinner margins, and employees have more choice than ever of where to work. Suddenly, loyalty is no longer relevant.¹

In our current climate, employee engagement – the degree of mental and emotional connection employees feel towards their work and organization – is the new golden goose. Study after study shows that high employee performance comes directly from high employee engagement.²  

The link between financial rewards and engagement is also clear: there is none.³ 

Despite this, companies still shell out billions of dollars to squeeze out additional performance from their employees. But does more money really make an employee feel more connected to their work? Or does it reinforce the notion that this job is a highly uncertain means to an end?

Financial rewards are what we call extrinsic motivators. These motivators are classic carrots and sticks – rewards and punishments designed to promote a desired behavior. These have a long history in psychology, dating back to Pavlov’s salivating dogs and Skinner’s ping-pong-playing birds. 

But people are more complicated than pets. Extrinsic motivators, such as financial motivation, only seem to work temporarily – they get us to do the desired behavior, but we go back to our old habits once we are rewarded.⁴ 

Receiving too many rewards can also crowd out our intrinsic motivation. This is called the overjustification effect. If we generally enjoy our work, but then we get a large bonus, we begin to work for that bonus, rather than our own enjoyment. This could be highly destructive in the workplace - however, intrinsic motivation directly leads to higher employee engagement. Again, we want work to be the end in itself, not just a means to an end. 

If using money is not effective on its own, how can we motivate employees to be more engaged at scale? In 2021, The Decision Lab sought an answer to this problem. Partnering with Hikai, we developed a conversational AI chatbot designed to improve employee engagement and workplace well-being. 

To get employees intrinsically motivated, we needed to add elements to the chatbot that simulated genuine recognition, communication, and praise. Thus, we leveraged cognitive behavioral therapy, a well-validated self-counseling technique, and applied it to the language of the AI. This allowed employees to feel more validated and heard, resulting in a 71% increase in engagement and reduced stress in 82% of employees surveyed. In short, intrinsic motivators work, they just need to be applied creatively. 

The Decision Lab is a behavioral consultancy that uses science to advance social good. Engaging employees can be tricky, but our expertise in human motivation and organizational psychology has helped countless organizations build happier, healthier, and more engaged workforces. If you’re interested in learning more about our work, or would like to collaborate with us, contact us.

1.Sahoo, C. K., & Sahu, G. (2009). Effective employee engagement: The Mantra of achieving organizational excellence. Management and Labour Studies, 34(1), 73–84. https://doi.org/10.1177/0258042x0903400105 

2. Neuber, L., Englitz, C., Schulte, N., Forthmann, B., & Holling, H. (2021). How work engagement relates to performance and absenteeism: A meta-analysis. European Journal of Work and Organizational Psychology, 31(2), 292–315. https://doi.org/10.1080/1359432x.2021.1953989

3. Blacksmith, N., & Harter, J. (2022, September 21). Majority of American workers not engaged in their jobs. Gallup.com. Retrieved October 13, 2022, from https://news.gallup.com/poll/150383/majority-american-workers-not-engaged-jobs.aspx 

4. Gneezy, U., Meier, S., & Rey-Biel, P. (2011). When and why incentives (Don't) work to modify behavior. Journal of Economic Perspectives, 25(4), 191-210. https://doi.org/10.1257/jep.25.4.191

5. Cho, Y. J., & Perry, J. L. (2011). Intrinsic motivation and employee attitudes. Review of Public Personnel Administration, 32(4), 382–406. https://doi.org/10.1177/0734371x11421495