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Do Monetary Rewards Actually Motivate Employees?

Gal Rimon
Gal Rimon

What science tells us about the effectiveness of giving employees cash rewards, pizzas etc

Motivating someone is an interesting concept. You need to dig to the root of what makes them tick. So, does giving employees money as rewards actually motivate them? This is, no doubt, a million-dollar question, no pun intended.

People tend to split into two camps when considering this question. Some people say that rewards will super-motivate employees. Others will say that rewards can have an adverse effect, cooling motivation and even killing it. They will say that the name of the game, especially for millennial employees, is corporate culture – the secret sauce that drives people to do their best, that cash and rewards are over-rated.

Luckily, recent research gives us some great insight on the subject.

Cash, presents or a pat on the back?

Researchers Liad Bareket-Bojmel, Guy Hochman and Dan Ariely, have looked into this subject. Dan Ariely is a Professor of Psychology and Behavioral Economics. His TED talks have been watched more than 7.8 million times. Their research shows that employees have different reactions to different reward types. Their experiment was held at a manufacturing facility for semiconductors, where employees are measured by productivity. It showed that rewards, regardless of whether they are cash, recognition or a coupon, work. But the results were that simple or straightforward, and this is where it gets interesting. 

When rewards backfire

The research showed that rewards had a positive effect on productivity, but the “after-effect" was much more pronounced, and the “after-effect” may make you think twice about using certain rewards in the workplace.

The experiment consisted of three reward types given to employees that excelled in a productivity challenge:

  • $25
  • A $25 pizza voucher; and
  • Verbal recognition

In all three cases, productivity went slightly up when the competition was still ongoing. But afterward, performance actually dropped. Performance didn't drop once the reward was verbal recognition - it stayed the same. But in the case of the cash reward or pizza voucher, performance dropped after the initial productivity spike. This finding is consistent with other research by Dan Ariely which shows that cash isn't a great motivator and that intrinsic motivation (the desire to do well) is much more important.

Beware of small rewards; go for verbal recognition instead

So, what is the manager to do? Stop cash-based rewards altogether?

The researchers don’t give an answer to this question. They say that employees may have taken notice of the size of the cash/voucher reward. They surmise that perhaps employees want to feel valued and are perhaps offended by the size of the rewards, which were small. This means that employers should be aware of the fact that a small reward may perhaps "send" a certain message to the employee. This can be perceived as controlling or alienating and may perhaps explain the fact that productivity dropped when the reward was discontinued.

The positive spin on this is that verbal recognition is never bad and that it can have a long-term sustainable positive impact on performance.


Image Credit:
Gal Rimon
Gal Rimon Member
Gal Rimon is Founder and CEO at GamEffective, a leading workforce performance gamification company. GamEffective helps companies engage employees for better motivation and learning. GamEffective is a Gartner 2016 Cool Vendor in Human Resource Management.