Money Talks, But Its not Loud Enough!

A theoretical study on the effectiveness of financial reward in motivating employee.

Many business managers today are not aware of the effects that motivation have a big role on their business, and it is therefore important they learn and understand the factors that determine positive motivation in the workplace. In his book, (Hunt, 1992), explain inspiring individuals to perform better (motivating) is probably the most important of the managers human skills. It is also possibly be the one providing the greatest return to the manager.

Motivating individuals means creating an environment in which they can satisfy their goals by adding energy and effort. Understanding motivation means understanding three links, they are; goal profile, energy and reward. (Hunt, 1992)
Ideally, managers would recruit individuals whose goals were the same as those of the organization. Managers would select those individuals with more energy to pursue these goals persistently, over a long period of time. Finally, they would have to design a reward system which allows individuals to achieve their goals while at the same time contributing to the goals of the organization.

Basically, there are two reward system used to motivate employee. Rewards can be given financially or non – financially. Financial rewards are a method that is most common when businesses rely on the quantity of the output of employees. For Instant, employees involved in production, could be issued a piece rate system where they are paid for each individual product they produce. In this case, they would be motivated to produce as much as possible in order to achieve a high pay. Managers also can motivate employee financially through paying schemes such as seniority based rewards, performance based, job status and skilled based rewards. (Mcshane and Von Glinow, 2003)

Whiles non financial rewards focuses on motivating employee without the monetary value as an objective. Managers can give employees more responsibility so that they feel their contribution is more valuable to the business and that their role is of higher importance. Examples are job promotions, enlargement, enrichment and rotations. (Mcshane and Von Glinow, 2003)

It is very essential for managers to choose the best reward system approaches to motivate their employees which also depends on the factors that the managers meets, such as company budget and business type. Arguments and discussion has been going on for long in deciding the most effective method to motivate employees.

According to Peter Drucker, ‘There is not one shred of evidence for the alleged turning away from material rewards. Antimaterialism is a myth, no matter how much it is extolled. In fact, they are taken so much for granted that their denial may act as a de-motivator. Economic incentives are becoming rights rather than rewards.' (Drucker, 1974)

In hence, Peter explains there is no doubt that we live in a money-motivated world. Any amount of human relations cannot compensate for a lack of monetary reward. If the reward is right, good human relations will give that extra zest to a team, motivating them to give of their best efforts. ‘Insufficient monetary reward cannot be compensated by good human relations’ (Drucker, 1974)

Ducker’s point of view is based on the theory of scientific management raised by Frederick Winslow Taylor who put forward the idea that workers are motivated mainly by pay. One of Taylors basic assumptions on human behaviour at work is ‘Man is a rational economic animal concerned with maximising his economic gain’ This means that the main form of motivation is high wages, linked to output produced by the workers.

However, other theories have explained a very different prospective compare to what Taylor has conclude in his research. Thus, explains the possibility of money becoming a motivator but not as primary method to motivate the employee on their work performance.

Abraham Maslow along with Frederick Herzberg introduced the Neo-Human Relations School in the 1950’s, which focused on the psychological needs of employees. Maslow put forward a theory that there are five levels of human needs which employees need to have fulfilled at work. All of the needs are structured into a hierarchy and only once a lower level of need has been fully met, would a worker be motivated by the opportunity of having the next need up in the hierarchy satisfied. (tutor2u.net, 2008)

In this case, financial rewards is not the best motivator as it only full fills lower level needs as showed in the diagram. An example would be the need for self – actualisation which cannot be satisfied by financial rewards alone. The need for self – actualisation of an employee can be motivated by other factors like achievements recognitions and awards. Thus, make financial reward have to be considered twice in motivating employees. Frederick Herzberg in the Motivator-Hygiene Theory classifies money or financial rewards as a hygiene factor. ‘Financial rewards do not contribute significantly to job satisfaction; yet the absence of it will result in job dissatisfaction’.

In addition, Herzberg studied what people want from their jobs and classified them into two categories which are satisfier and motivators. Satisfiers are factors that people require from a job to justify minimum effort. These factors include working conditions, money and benefits. After employees are satisfied, however, just giving them more of the same factors don’t motivate them to work harder. Motivators are factors that stimulate people to put out more energy, effort, and enthusiasm in their job. He then concluded that at some stages, financial rewards only meet as a satisfier not as a motivator. (Pell, 1999)

Douglas McGregor in his Theory X makes assumption that the employees in lower level of organizations are motivated to work by financial rewards. He also make another assumption in this theory that people dislikes works and not ambitious, thus financial rewards will be the best motivating factors for this group of employees. For this group of employees, financial reward is a very effective motivating factor that motivates them to perform better in their job.

However, McGregor also comes up with Theory Y which makes assumption that employees in higher level of organizations are not solely motivated by financial rewards. He makes assumption that these groups of people are ambitious and are willing to accept more responsibility in their job. In this case, financial rewards will be insufficient to motivate the employees to perform better and will require proper job design and career planning to motivates them. (Mcshane and Von Glinow, 2003)

In practice, we have to admit that there is business that went to the peak by motivating employees through financial rewards. This is done in companies which their goals focus on the quantity of output made. A sales or marketing company in some ways would be effective to use this method to gain as much profits as possible, encouraging staffs to maximise the sales for a greater earnings.

In some cases financial rewards becomes effective. But in a more wider prospective for both the managers and employees, financial rewards isn’t the best effective ways to motivate the employees to extend their performance since there are high risk of possibility that financial rewards can fail to motivate as desired.
Williams Monahan, CEO of Oakdale, argued that ‘high performers don’t go for the money’. There are also quite a number of top managers who comment that financial reward alone is insufficient in motivating good employees. Thus, companies like Xerox do motivates their employees mainly by designing interesting and challenging jobs. (Mcshane and Von Glinow 2003)

In conclusion, even though in reality we face that financial rewards becomes a motivator, But researches and theories developed by experts as explained above shows that financial rewards doesn’t play a big important role to keep on motivating employees in job performance as they also need to have a psychological motivations like self actualisation and recognitions. Financial rewards aren’t the most effective way to motivate employees for a long period of time. Therefore, it is believed that money talks, but it does not talk loud enough.

Bukit Jalil, February 13 2009