Should I motivate my staff with financial or non financial rewards?

Do financial rewards motivate staff?

The plain truth is that we all need money to cover our basic needs – research in this area is long established. But money, while an important motivator, is not the prime motivator as we discussed in my previous blog ‘As a business owner how do I motivate my staff’. Non Financial rewards can be more efficient than cash and create higher impact on people’s motivation.

So what are the facts about motivating staff using financial rewards?

A few pieces of research show how financial rewards are not automatically the motivators we think they are. They can also have unintended consequences.

Research on financial vs non-financial rewards

The ‘Entrepreneur.Com’ report research that shows compensation is the most frequently used motivator, but only the prospect of receiving money in the near future is a strong enough motivator to change behaviour. Once money is received its’ power to motivate ends quickly, some studies say within weeks and studies suggest it takes 10% of the base package to provide the incentive. It goes on to talk about the non-financial motivators being more lasting where people feel engaged in a business and part of a winning team. Motivation based on recognition for contributing their ideas and people working to achieve the goals set by the business.

Praise and opportunities goes a long way

McKinsey reported in 2009 that many managers feel that ‘money talks’, but the more powerful motivators were praise from your manager, attention and the chance to lead projects. These ‘intrinsic motivators’ could be more effective than bonus. Someone earning £30k per year was not more motivated than someone earning £28k. A person earning £95k was not less happy in their job than someone at £100k.

McKinsey observed that SMEs in particular could offer more rewarding and interesting jobs, especially at start up. People were more involved in the development of the business. They had more flexibility of roles, tailored to the individual that could dramatically improve job satisfaction. They had good lines of communication and knew what was happening.

Job satisfaction vs salary

The Harvard Business Review also challenged the myth that pay alone will motivate us. In a major piece of research covering 15,000 individuals over many years they found the association between job satisfaction and salary was only 2%. Employees earning salaries in the top half of the data range reported similar levels of job satisfaction to employees earning salaries in the bottom half.

In another survey covering 1.4m employees from 192 organisations across 34 nations had the same findings. In other words if we want an engaged workforce money is not the only answer – money does not buy engagement.

Unintended consequences of boosting sales

In some long term research Harvard Business School found that in the 1990’s 10% of Senior Executive compensation was contingent on stock prices. By 2003 that share had increased to 70%. There was heavy reward for short term performance that ultimately proved disastrous. Names such as Enron, Tyco, WorldCom and of course the Bank mis selling of the 1990’s were part of the dark side of creating and selling in a completely unethical manner.

There must be concern about unintended consequences of financial incentives. What do they mean for moral and ethical behaviour and the intrinsic interest in the long term survival of the company?

Be creative in using financial and non financial rewards to motivate staff

The conclusion to be drawn from this research is that money is not the only motivator. There are many other opportunities to be creative in setting up a culture and framework for motivation in your business. Keeping it personal will also help you to create maximum impact and draw your staff into the success of your business.

In my next blog in this series I will have a look at some of the non financial motivators that you and your management team need to work on.


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