What Are the Advantages & Disadvantages of Using Money to Motivate Employees?

Money often is a common tool to motivate employees. If your primary strategy for motivating employees is to give them monetary rewards like raises or bonuses, there could be unintended consequences of what amounts to be a quick fix for motivating your staff. While motivating employees with money has its advantages, it is not the only way that employees can be truly motivated.

One of the advantages to using money as a motivational tool is that it is a universal reward. Money is something that can be used by all employees, and for many employees, money is an appreciated reward for service to the company. By providing this kind of one-size-fits-all reward to your employees, it can be used to acquire material possessions or personal experiences they might have been putting off until they have enough money. For example, for some people, money means buying a new car, taking the family on a vacation or being able to comfortably meet their monthly obligations. Therefore, while the monetary reward or increase in pay might be the same for all employees, its end use can be varied yet useful.

Another reason to use money as a motivating tool is because it's easy. When you give a financial bonus to an employee, you know exactly what the bonus is worth. Or, when you increase an employee's salary as a reward for strong performance, it is something that is simple to calculate. Providing a monetary reward or wage increase also is simple in terms of tax liability, depending on the type of reward - an increase in the employee's salary or a one-time bonus or spot award for exemplary performance. On the other hand, if you give employees some type of tangible property, there may be tax implications that require establishing a fair market value before your business can claim a deduction, and they probably need to pay taxes on it, too.

A disadvantage to using money for motivating employees is that the motivation does not last. Wise Step's contributor Chitra Reddy says that monetary rewards "encourage compliance rather than innovation and creativity." This means that employees might perform well for a while to demonstrate their appreciation for the reward, but the money really doesn't inspire more intrinsic job satisfaction that employees demonstrate through initiating new processes that benefit the organization. Simply put, this type of motivation isn't sustainable. At some point, appreciation for a monetary reward diminishes and the employee's once strong performance might also diminish. Status and recognition typically are more effective for sustainable, long-term employee motivation. If you need a short boost of productivity from your employees, offering a bonus may very well do the job. If you want long-term results, a bonus may not be the answer. Herzberg's motivation-hygiene theory perfectly illustrates why recognition is far more effective than reward.

Another drawback of using money to motivate employees is that it is costly. Every time you offer a bonus or raise to employees in exchange for performance, you have to give up some profit. In addition, employees may come to expect a monetary reward for each time they exceed or even meet their performance expectations. Many effective employee-motivation techniques do not involve money. For example, giving an employee recognition in front of others or giving extra time off or a flexible work schedule might work just as well. Providing a prestigious title also may help motivate employees without costing you money.