November 6th, 2017
With conflicting statements such as “money makes the world go ‘round”, and “money is the root of all evil”, it is difficult to dissect the various complexities of the longstanding relationship between humans and money. The result has been a proliferation of speculations and misunderstandings surrounding the role(s) money plays in our lives, especially at work. Here we turn to science in order to shed some light on a number of popular “money myths”, particularly those relevant to the workplace.
Myth 1: Money Drives Employee Motivation
For many years, it was assumed that money was the strongest motivating force within organizations. However, current research on the topic suggests that early researchers and organizations may have over-simplified the effectiveness of financial incentives as a means to elicit employee motivation.
Money is generally considered to be an extrinsic, or external, motivator. Extrinsic motivators get people to engage in an activity or task based on the provision of a tangible reward1. In such cases, satisfaction is not derived from the activity itself, but the outcome or reward associated with it. Often once the rewards are removed, or become ineffective, the associated behaviors tend to cease2. As a result, while money can be extrinsically motivating to employees, this form of motivation does not produce lasting change in underlying behaviors or attitudes. This can be contrasted with intrinsically motivated behavior; which people engage in as the behavior itself is inherently satisfying or interesting. Previous research has shown that using money as a primary motivator can undermine or depress the intrinsically motivating aspects of a job, such as enjoyment, providing a sense of achievement, recognition, or learning3,4,5. That is, by overemphasizing external rewards, the work may become less interesting and enjoyable for employees. This is particularly important to make note of, as intrinsic motivation “works as the most powerful driver of employee attitudes and performance.5" While paying employees an inadequate amount of money will of course be demotivating, research does not suggest that paying employees more will enhance work motivation5.
Ultimately, money is and will continue to be a vital element to the employer-employee relationship. Competitive salaries will continue to be an important factor for organizations to consider in the battle for talent. However, solely relying on monetary and other extrinsic rewards to motivate employees is unlikely to produce a more intrinsically motivated, or productive workforce.
Myth 2: Higher Salaries Leads to Happier Employees
Despite the popular proverb “money can’t buy happiness”, achieving a high level of material wealth is one of the most important goals for people across societies6. Scientific research on the topic however would suggest that the link between money and happiness is quite complicated.
Studies have shown that money may increase subjective well-being for individuals living in poverty, or in poor nations7. However, for individuals who belong to the middle- or upper-class, and who are living in a wealthy nation, it is unlikely that increases in income will lead to substantially higher levels of subjective well-being. In addition, a study8 based on over 450,000 individual responses to the Gallup-Healthways Well-Being Index found evidence for a “happiness plateau”; such that an increase in annual salary was related to an increase in happiness, but only to the threshold of around $75,000. More specifically, emotional well-being, or “the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one’s life pleasant or unpleasant”, increases according to salary up to $75,000, but begins to level off after that. Researchers suggest that additional income beyond the threshold may no longer improve individuals’ ability to spend time with others, to avoid pain and disease, and to enjoy leisure; all of which are critical drivers of emotional well-being.
In addition, if we were to adopt the rationale that more money leads to happiness, it would be expected then that the exceptionally wealthy must experience higher levels of happiness compared to the rest of society. Research however, suggests otherwise. That is, studies show that subjective perceptions of wealth largely depends on comparisons to a reference point (i.e., neighbors, family, friends)9, which explains why four in ten American millionaires report not feeling wealthy10, as well as why the majority of people with assets in the tens of millions of dollars still don’t perceive themselves to be financially secure11.
Ultimately, science tells us that once a person’s basic needs are met, the additional influence of one’s income on life satisfaction is negligible. Instead, individuals who are at a comfortable salary and live within a wealthy nation should be encouraged to focus on personal goals unrelated to material wealth if seeking to improve their quality of life5.
Myth 3: Paying People More Money Results In Higher Quality Work
Studies have suggested that while monetary rewards may increase performance quantity, this is not necessarily the case for performance quality. Specifically, research shows that offering financial rewards may get employees to work faster, but that this doesn’t necessarily result in higher quality work2,12,13,14,15.
As discussed previously in the context of motivation, when money becomes the most important goal, an individual’s interest will shift to a focus on that goal, rather than the performance of the task itself 16. Furthermore, studies show that the more cognitive sophistication and problem solving required for a task, the worse people tend to perform if working for a reward 2,17.
Ultimately, in the short term, the use of financial incentives may appear to be efficient in getting employees to perform a task or behavior more quickly. However, this type of exchange is unlikely to produce high quality performance lending way to long-term sustainability within organizations.
Takeaway: How Can We Shift Our Focus Away from Money?
A strict focus on monetary rewards can undermine the inherently interesting and satisfying aspects of the work itself, is unlikely to boost employees’ happiness, and may produce faster but not necessarily higher quality work. Even researchers who remain proponents for the use of financial rewards concede that financial incentives “are not substitutes for intrinsic, social, or other rewards that people also value.” and proclaim that the best option is to use various rewards simultaneously12. Therefore, there is without a doubt, a need to focus on the many other factors that have a direct impact on higher order needs, rather than financial incentives alone.
Instead of solely relying on monetary rewards which can undermine some of the more intrinsically motivating aspects of the job itself, organizations can emphasize intrinsically motivating aspects of the work, such as feelings of recognition and/or achievement3,4,5. In addition, focus can be placed on improving other factors driving employees’ motivation, happiness and productivity. Such factors can include employees’ satisfaction with coworkers, supervisors and the work itself 8, to name a few. Though there are quick fixes, such as ensuring that employees are receiving recognition for accomplishments, organizations should pursue a more comprehensive understanding of the mechanisms driving important employee outcomes on a larger scale, to ensure long-term sustainable change.
One method to address this is to evaluate and track the factors driving overall organizational health and effectiveness. To help meet this need, Viewpoint Research has developed a comprehensive tool - Organizational Health and Effectiveness Profile (OHEP), which provides an empirically tested, structured method to identify and address factors that drive organizational performance. Specifically, the assessment takes a multifaceted approach to assess various factors such as engagement, commitment, burnout, and other factors to pinpoint strengths and opportunities for improvement within organizations. To learn more about the OHEP and how it may be used in your organization please contact email@example.com.
About the Authors:
Kelsey Hahn, MSc
Kelsey leads the Viewpoint Research group. With a commitment to an evidence-based research approach, her areas of expertise include leadership, employee engagement and motivation, governance and emotional intelligence (EQI 2.0 Certified). Kelsey holds a Bachelor of Commerce (Honours) from the University of Saskatchewan and Masters of Science in Organizational Behavior from Queen's University.
Amanda Julian, MSc
Amanda is a Research Contributor at Viewpoint Research. Her specific research interests are in employee individual differences, leadership, and counterproductive behaviours. Amanda holds a Bachelor of Science from Mount Allison University, and a Masters of Science in Industrial Organizational Psychology from the University of Calgary. She is currently completing a Ph.D in Industrial Organizational Psychology at the University of Calgary.
Stephanie Law, MSc
Stephanie is a Research Contributor at Viewpoint Research. She contributes to a variety of research projects, including examining the role of board diversity in firm performance, corporate governance, understanding qualities of leadership, and factors influencing entrepreneurial success. Stephanie holds a Bachelor of Science in Psychology and Masters of Science in Industrial and Organizational Psychology from the University of Calgary. She is currently working towards her Ph.D in Organizational Psychology at the University of Calgary.
 Ryan, R. M., & Deci, E. L. (2000). Self-determination theory and the facilitation of intrinsic motivation, social development, and well-being. American Psychologist, 55(1), 68-78.
 Kohn, A. (1993). Why Incentive Plans Cannot Work. Harvard Business Review, 71(5), 54-62.
 Deci, E. L., Koestner, R., & Ryan, R. M. (1999). A meta-analytic review of experiments examining the effects of extrinsic rewards on intrinsic motivation. Psychological Bulletin, 125(6), 627-668.
 Chamorro-Premuzic, T. (2013, April 13). Does money really affect motivation? A review of the research. Harvard Business Review. Retrieved from: http://blogs.hbr.org/cs/2013/04/does_money_really_affect_motiv.html
 Kohn, A. (1998). Challenging behaviorist dogma: Myths about money and motivation. Compensation & Benefits Review, 30(2), 27-37.
 Diener, E., & Oishi, S. (2000). Money and happiness: Income and subjective well-being across nations. In Diener, E., & Suh, E. M. (Eds.), Culture and Subjective Well-Being (pp. 185 - 218). London, England: MIT Press.
 Diener, E., & Biswas-Diener, R. (2009). Will money increase subjective well-being?: A literature review and guide to needed research. The Science of Well-Being, 119-154.
 Kahneman, D., & Deaton, A. (2010). High income improves evaluation of life but not emotional well-being. Proceedings of the National Academy of Sciences, 107(38),16489-16493.
 Beaton, C. (2017, August 3). Why you feel richer or poorer than you really are. NY Mag: Science of US. Retrieved from: http://nymag.com/scienceofus/article/why-you-feel-richer-or-poorer-than-you-really-are.html
 Metz, J. (2011, March 14). Four out of ten millionaires do not feel wealthy. ABC News. Retrived from: http://abcnews.go.com/Business/ten-millionaires-feel-wealthy-fidelity-survey-americas-richest/story?id=13132394
 Wood, G. (2011, April). Secret fears of the super-rich. The Atlantic. Retrieved from: https://www.theatlantic.com/magazine/archive/2011/04/secret-fears-of-the-super-rich/308419/
 Gupta, N., & Shaw, J. D. (1998). Let the evidence speak: financial incentives are effective!!. Compensation & Benefits Review, 30(2), 26-32.
 Jenkins Jr, G. D. (1986). Financial incentives. Generalizing from laboratory to field settings, 167-180.
 Jenkins Jr, G. D., Mitra, A., Gupta, N., & Shaw, J. D. (1998). Are financial incentives related to performance? A meta-analytic review of empirical research. Journal of Applied Psychology, 83(5), 777-787.
 Kohn, A. (1998). Challenging behaviorist dogma: myths about money and motivation. Compensation and Benefits Review, 30, 27‐37.
 Deci, E. L. (1972). The effects of contingent and noncontingent rewards and controls on intrinsic motivation. Organizational Behavior and Human Performance, 8(2), 217-229.
 Ariely, D., Gneezy, U., Loewenstein, G., & Mazar, N. (2009). Large stakes and big mistakes. The Review of Economic Studies, 76(2), 451-469.
 Edwards, B. D., Bell, S. T., Arthur Jr, W., & Decuir, A. D. (2008). Relationships between facets of job satisfaction and task and contextual performance. Applied Psychology, 57(3), 441-465.