Analysis: Research suggests the relationship between pay, motivation and performance is much more complicated than you might think
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By Ann Masterson and Karen Feery, TU Dublin
Given the current cost of living crisis, you would think that higher pay would be welcomed by most and would produce better performance, but research says otherwise. In fact, it suggests that the relationship between pay, motivation and performance is much more complicated. Although money can motivate in the short term for mundane tasks, long-term this does not seem to be the case. The results from an extensive piece of international research by Tim Judge and colleagues indicate a very weak link between salary and performance.
Gallup’s engagement research also reports no significant difference in employee engagement by pay level. What does this mean for managers? If we want an engaged workforce, money is not the answer, even if we want employees to be happy with their pay, money is still not the answer. Simply put, engagement cannot be bought.
In fact, some research suggests that money can do more harm than good when it comes to motivation. A comprehensive US study found the more employees focus on their salaries, the less they focus on satisfying their intellectual curiosity, learning new skills, or having fun, and those are the very things that make people perform best. Of course, that doesn’t mean we should work for free. We all need to pay our bills and provide for our families but once these basic needs are covered, the psychological benefits of money are questionable, and the meaning of money becomes subjective. It is time to consider what people value and what they want rather than just compensating them for what they do.
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So, what kind of things do motivate employees? According to research, managers need to take the time to find out what their employees value and to recognise staff. But employee recognition is not just about saying “thank you” or the occasional reward. Instead, it involves building a culture of appreciation and acknowledgment that boosts morale, engagement, and productivity. This is not just a nice-to-have extra for your organisation. It genuinely adds value on many levels.
Gallup research tells us that lack of recognition is the number one reason employees leave their jobs or are absent and that it is key for increasing job satisfaction, motivation, and loyalty, all of which are crucial for retaining and attracting top talent in today’s competitive market. When it comes to productivity and engagement, recognition is vital. Oxford University’s Saïd Business School found happy employees to be 13% more productive than unhappy employees, 92% are more likely to repeat a specific action after receiving recognition for it and that over 40% of workers would put more energy into their work if they were recognised more often.
But is there evidence of formal recognition actually working in industry? According to a survey conducted by Achievers, 83% of HR leaders said that recognition programs had a positive impact on employee engagement, while Globoforce found that companies with these programs are 12 times more likely to have a highly engaged workforce. Research from the Harvard Business Review found 78% of respondents believed employee recognition positively impacted employee retention. All of these outcomes have a positive effect on the bottom line, but does it take money to make money? Of course it does, but not a lot. Based on a study by Bersin & Associates, companies that spend 1% or more of their payroll on recognition have a 79% higher success rate in achieving their business goals compared to companies that spend less than 1% of their payroll on recognition.
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Employees have been asked and they have spoken. Not only do 52% of them want more recognition from their managers, 41% want more recognition from their co-workers too, but this does not seem to be happening. Despite employees needing (and asking for) recognition for their accomplishments and effort at work, 19.9% of employees rarely or never receive recognition from immediate co-workers and 22.1% of employees rarely or never receive recognition from their immediate manager or supervisor. Managers may sometimes hesitate to recognise employees for a variety of reasons, ranging from fear of creating envy, concerns about perceptions of equity and fairness, personal insecurities, and uncertainty about how to provide recognition. But these barriers can be overcome by prioritising a positive work culture and developing the skills needed to provide meaningful recognition to their employees.
So, how do we motivate employees in the post-Covid world of work where so many different factors – like technology, diversity, sustainability, and others – are driving change, causing employees to want different ways of working, like WFH, or even to disengage, ‘quiet quitting’. Money is one piece of the jigsaw, but employees all have different personal goals, values, and needs, so naturally what motivates will differ from one employee to the next. This calls for a more rounded approach to motivation. Research from the Harvard Business School offers guidance for employers in this regard, reminding us that money does not always talk and that other kinds of rewards can be inexpensive but just as motivational as money.
Metrics are not the only things to be measured, there is sometimes room for subjective performance measurement, too. Consider other motivators like increasing employees’ autonomy, empowering them to make decisions, creating opportunities for collaboration and connecting with their colleagues. Research shows positive work relationships contribute to job satisfaction and motivation. Finding ways to help employees find pride and fulfilment in their work also goes a long way to building emotional commitment to the organisation too. When it comes to recognition and motivation, be open and fair with your staff. Ask employees how you can recognise them in an equitable way. You might be surprised at how this builds trust with them and at how creative their suggestions can be.
Ann Masterson is Head of Human Resource Management at the School of Management, People and Organisations at TU Dublin. Dr Karen Feery is a Senior Lecturer in the School of Business, TU Dublin Blanchardstown Campus and has been teaching and researching in higher education for over twenty-five years.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
