Why Cash Might Not Motivate Employees

When inflation is rampant around the world and employees everywhere are concerned about the cost of living, it may seem perverse to suggest that money isn’t that important to people, but research from the University of Waterloo suggests that even with intense economic pressures, our salary may not be the most important thing when it comes to motivating us.

The study suggests that tangible rewards are motivational to employees when they’re unexpected, pleasurable, easy to use, and distinct from our salary. This is important, as the researchers suggest that firms are spending around $90 billion per year on tangible rewards for employees, including recreational trips and gift cards.

“We found that there is, at best, mixed evidence regarding the motivational efficacy of tangible rewards versus cash rewards,” the researchers explain. “It is somewhat puzzling why so many companies go to the trouble of tangible rewards when cash rewards also lead to motivational differences.”

Tangible rewards

The researchers wanted to examine the difference in preference between tangible rewards and cash. They analyzed a range of factors, including the nature of the reward, its ease of use, how the reward was presented, and its novelty.

“Rewards are constellations of attributes, and firms should focus more on the motivational effects of the attributes associated with a reward rather than the reward type itself,” they explain. “Results confirmed that each of these attributes—individually and in combination—increases employee effort and performance.”

The study suggests that if managers are really keen to use tangible rewards to motivate people, then it’s important that these four attributes are incorporated into their program in some way.

“If for whatever reason tangible rewards are the only tool available, our results show compelling evidence that employees are motivated by rewards that are perceived as distinct from salary,” the authors conclude. “Therefore, firms looking to get the most out of their reward programs should emphasize the distinctiveness of those rewards, and the attributes above are four ways firms can do that.”

Facebooktwitterredditpinterestlinkedinmail