Financial Motivation: A Review
Definition
Key Facts
- Temporary Effect: Extrinsic motivators, such as financial motivation, tend to work only temporarily. They may initially drive individuals to engage in the desired behavior, but once the reward is received, they often revert to their old habits.
- Overjustification Effect: Receiving too many rewards can actually diminish intrinsic motivation. When individuals are excessively rewarded for a behavior, they may come to view the behavior as solely driven by external factors, leading to a decrease in their intrinsic motivation.
- Complex Relationship: The link between compensation, motivation, and performance is not straightforward. While higher pay might be expected to produce better results, scientific evidence suggests that the relationship is much more complex.
- Money as a Limited Motivator: Research indicates that money is not the primary motivator for most employees. Gallup studies have shown that money ranks fourth on the list of reasons why employees quit, and only a small percentage of workers report finding motivation in money and bonuses.
- Hierarchy of Needs: Maslow’s hierarchy of needs suggests that individuals have a range of needs that must be fulfilled in a specific order. Financial motivation primarily addresses the need for physiological and safety needs, but higher-level needs such as belonging, self-esteem, and self-actualization may require different motivators.
Financial motivation refers to the use of monetary incentives to encourage desired behaviors, particularly in the workplace.
Temporary Effect
Extrinsic motivators, such as financial rewards, have a temporary impact. They may initially drive individuals to engage in the desired behavior, but once the reward is received, they often revert to their old habits.
Overjustification Effect
Excessive rewards can diminish intrinsic motivation. When individuals are excessively rewarded for a behavior, they may come to view the behavior as solely driven by external factors, leading to a decrease in their intrinsic motivation.
Complex Relationship
The relationship between compensation, motivation, and performance is complex. While higher pay might be expected to produce better results, scientific evidence suggests that the relationship is much more intricate.
Money as a Limited Motivator
Research indicates that money is not the primary motivator for most employees. Gallup studies have shown that money ranks fourth on the list of reasons why employees quit, and only a small percentage of workers report finding motivation in money and bonuses.
Hierarchy of Needs
Maslow’s hierarchy of needs suggests that individuals have a range of needs that must be fulfilled in a specific order. Financial motivation primarily addresses the need for physiological and safety needs, but higher-level needs such as belonging, self-esteem, and self-actualization may require different motivators.
Conclusion
Financial motivation can be a useful tool for driving short-term behavior, but it has limitations. Organizations should consider a range of motivators to effectively engage employees and foster long-term performance and satisfaction.
Sources
- Financial Motivation – The Decision Lab
- Does Money Really Affect Motivation? A Review of the Research
- Why Money Is a Bad Motivator and What Works Better • Clarity Wave
FAQs
What is financial motivation?
Financial motivation refers to the use of monetary incentives to encourage desired behaviors, particularly in the workplace.
How does financial motivation work?
Financial motivation works by providing individuals with a tangible reward for engaging in a desired behavior. This can be in the form of bonuses, raises, or other forms of compensation.
What are the benefits of financial motivation?
Financial motivation can be an effective way to drive short-term behavior and achieve specific goals. It can also be used to reward employees for their hard work and dedication.
What are the limitations of financial motivation?
Financial motivation can have a temporary effect and may not be effective in the long term. It can also lead to the overjustification effect, where individuals become less intrinsically motivated to perform a behavior if they are excessively rewarded for it.
What are some alternatives to financial motivation?
Alternatives to financial motivation include providing employees with opportunities for growth and development, creating a positive work environment, and recognizing and appreciating their contributions.
How can I use financial motivation effectively?
To use financial motivation effectively, it is important to set clear goals and expectations, provide timely and specific feedback, and avoid overusing rewards.
What are some examples of financial motivation?
Examples of financial motivation include bonuses, raises, profit sharing, and stock options.