Does money improve performance?

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If an organization uses money as a reward, can they impact performance?

In other words, does money improve performance? Will it make your employees work harder?

Let’s discuss …

1. Power comes in many forms. Two of which are reward power and coercive (punishment) power (Avery, 2007).  “Reward and coercive power are two sides of the same coin” (Suggs, 2014). There is a very fine line between giving someone a raise as a reward and denying them a raise as punishment. If an employee does not receive the maximum raise possible, it can feel like a punishment, which is demotivating for many employees. It is very difficult to leverage reward power without inadvertently levying coercive/punishment power.

2. In my management develop programs, I occasionally ask, “how many of you feel you are paid what you are worth.”  There are few, if any who believe this to be so. Even after an employee has received a raise, after about 30 – 45 day (if that long), they are often start thinking to themselves “I really deserve more.” A reward cannot have it’s intended impact if it is perceived as insufficient. It can be difficult for organizations to counter this tendency.

3. Many employees perceive a raise as gratitude (for many women) or payment owed (for most men) for work that has already been done, not for work they will do in the future.  This perspective does not lend itself as motivation for future performance.

Monetary compensation and performance can be tricky and does not always correlate with performance (even at the executive level).  Paying an employee more can certainly help keep them “on board,” which is highly impactful when it comes to employee turnover rates. However, money is seldom the motivator for making employees work harder.

If you would like more information on this topic, below is the a link to a Harvard Business Review article titled, “Does Money Really Affect Motivation? A Review of the Research” (Chamorro-Premuzic, 2013)

 

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