Why Compensation Doesn’t Drive Motivation

Everyone can use more money. No matter how happy and engaged your employees are at work, they won’t turn down a raise or a perk.

But will the incentive of a higher salary or compensation bonus improve their work performance? Well, that’s another story.

[bctt tweet=”Financial incentives can undermine autonomy and intrinsic motivation” username=”reflektive”]

More than 70 percent of today’s workforce are knowledge-based employees, meaning their performance is driven by their skills, attitude, and their ability to innovate and drive change. While compensation is a factor in their employee experience, it doesn’t wield as much influence as you may think — a nuance especially important for companies using a pay for performance model.

As Monique Valcour wrote in the Harvard Business Review, “How employees work from day to day has a bigger influence on their motivation than their compensation and benefits package.”

Motivation is far more complex than dollars, cents, and stock options. It includes a number of variables, such as company culture, career development, as well as meaningful and challenging work.

Compensation Isn’t Enough

Decades of research has shown that money isn’t the driving force for employee performance. As early as the 1970s, Rochester University psychologist Edward Deci developed the self-determination theory after finding that students who were offered cash prizes to solve puzzles were less likely to continue working on them after receiving payments. Essentially, once people receive an incentive, their motivation wanes.

According to Deci, an over-emphasis on financial incentives undermines autonomy and intrinsic motivation. “You need thinkers, problem solvers, people who can be creative, and using money to motivate them will not get you that,” he said.

How employees work from day to day has a bigger influence on their motivation than their compensation and benefits package.

Companies are seeing the theory manifest in current workforce trends. More than one in three employees changed jobs within the past three years, and the vast majority of them left their company to do so.

Most workers, especially millennials, want their work to have meaning and purpose and use their talents for important projects, according to a Gallup report. They are less interested in settling, even if compensated.

Focus on Autonomy and Impact

So if employees are looking for meaning and purpose in their work, how does your organization meet that need and use it as a motivating factor?

One way is focusing on impact. When your employees feel like they are a vital part of the business, it makes their work more meaningful to them. The more impact they have on the business, the more they will feel connected to the company and engaged in their work.

[bctt tweet=”Boost your employees’ sense of purpose in their work by giving them more meaningful tasks” username=”reflektive”]

You can boost their sense of purpose in their work by giving them more meaningful tasks and responsibilities, as well seeking their input and feedback. When employees are involved in decision-making, they’re more committed to the company.

With greater responsibility and autonomy, employees take ownership of their work, which often improves performance and engagement.

Use Development as a Driver

A greater degree of employee responsibility means a greater need for ongoing training and development. Research shows that most employees desire ongoing development, and many organizations are using it as a key part of their performance management process.

According to a recent Gallup report, today’s workforce is “looking for more than a paycheck—they are looking for purpose and a chance to have coaching conversations that promote their development.”

Today’s employees are looking for purpose and a chance to have coaching conversations that promote their development.

Leading companies are recognizing development as a motivating factor, and are replacing annual evaluations with ongoing feedback and coaching.

What’s the benefit of this process? When your employees receive tools and coaching, they improve their performance and remain engaged in their work. They not only feel connected and supported by the company, they also see the potential to progress in the organization. What’s more motivating than that?

Give Workers a Challenge

Today’s workers are also looking for a challenge. When employees are bored or caught up in routine work, they’re unmotivated. And when they’re not motivated, they’re not engaged.

New challenges and the opportunity to innovate are key motivating factors for employees. According to a recent survey, 83 percent of employees said they’re more likely to stay with an organization if they could take on new challenges.

Managers can facilitate this by pushing employees to try new things where they have potential to succeed and allowing them to take risks. Through regular coaching, communication, and feedback, you can discover unique ways to challenge employees and fuel their motivational drive.

Motivating employees isn’t a simple issue that extra money can solve. It takes a deeper understanding of their intrinsic values to find the right ways to inspire them so they can produce quality work and remain engaged with your organization.