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Oh boy!

I've heard so many people talking about raising salaries so that they can keep people motivated. While this is not a wrong move, it's been estimated that once you are at close to $75,000 (a US benchmark), the diminishing returns on material rewards tapers off like crazy.

So, as a coach to businesses, I've often had to educate people on the psychology of motivation. My hope is that a new era of leadership will emerge to exhibit real care and diligence in observing the behaviors of their people. It's not easy. It's actually far tougher, especially if we have midsguided thoughts about leadership.

As a psychologist, I've come to realize that our earliest role models of leadership are unconscious ones - we lead like our parents. If your parents were strict, you might have access to a more draconian style. If your parents were kind, empathetic and compassionate, you might have access to a more servant leadership style. But more importantly, if your parents were in the generation of lack, they might have tried to serve your physical and survival needs by providing you money. I think in the case of many parents in Asia (or post WW2 era parents), they want to provide a sense of comfort by upholding these needs when they themselves struggled to earn.

I believe in the end, this is what makes a generation of leaders that think that money is all powerful and have no other tools at their disposal.

Money, as a motivator, has been a subject of extensive research and discussion in the field of psychology and business. Here are some key highlights.

Transactional Motivation

Money is often seen as a transactional motivator. It can be effective for short-term goals and when a task is straightforward and requires a simple transaction of time for money. Research by psychologists such as Frederick Herzberg has suggested that once basic needs are met, the power of money as a motivator significantly diminishes.

Extrinsic vs. Intrinsic Motivation

Money is considered an extrinsic motivator. It can lead to a temporary increase in productivity, but it doesn't necessarily lead to a long-term engagement or personal satisfaction in the job. Daniel Pink's book "Drive" highlights at length intrinsic motivation, which involves doing a task because it is inherently interesting or enjoyable, is often more sustainable.

The Diminishing Returns of Money

Studies have shown that beyond a certain point, increases in salary do not correlate with increases in job satisfaction. This is known as the diminishing returns of money. The exact point at which money stops being a significant motivator can vary depending on the individual and the context.

The Overjustification Effect

There's a psychological concept known as the overjustification effect, where providing an external incentive for a behavior that is already internally rewarding can lead to a reduction in intrinsic motivation. This suggests that when you pay people to do jobs they already enjoy, they may lose some of their natural interest in the work.

Money-Related Stress

While lack of money can be a significant source of stress and demotivation, having money can also lead to stress if it becomes the main focus. This is especially true if the pursuit of income comes at the expense of personal relationships, health, and well-being. Burnout, as it seems, is a very costly affair that can go way beyond the monetary interests employees have.

Cultural Differences

Attitudes towards money and motivation can vary widely across different cultures. In some cultures, money can be a strong motivator because it is closely tied to social status and family responsibility.

Going Beyond Extrinsic Motivation

As a leader, if you need to motivate your team, especially during a crisis, you're going to find that extrinsic motivation ceases to be the answer. Failing to understand the complexities of money as a motivator can lead to several negative consequences in the workplace.

Here are some of the potential issues that can arise:

Reduced Employee Engagement

If leaders rely solely on financial incentives, employees may become less engaged with their work. When the novelty of the monetary reward wears off, they might only do the minimum required to achieve the financial benefit, leading to a decrease in overall engagement and productivity.

Decreased Job Satisfaction

Employees who are motivated primarily by money may find their job satisfaction waning over time. They may start viewing their job as a mere transaction, which can reduce their sense of fulfillment and happiness at work.

Higher Turnover Rates

Workers whose primary link to a company is their paycheck may be more likely to leave for a higher-paying job. This can result in higher turnover rates, which are costly and disruptive to the organization.

Neglect of Intrinsic Motivators

By not recognizing the importance of intrinsic motivators, such as personal growth, recognition, and a sense of purpose, leaders might miss opportunities to inspire their teams in more meaningful and sustainable ways.

Loss of Competitive Edge

Companies that fail to inspire their employees beyond their paychecks may struggle to innovate and maintain a competitive edge. Intrinsic motivation is often linked to creativity and innovation because it encourages employees to go beyond the status quo.

Ethical and Moral Issues

Overemphasis on money can lead to ethical compromises. Employees may cut corners, withhold information, engage in dishonest behavior, or even sabotage colleagues if they believe it will lead to financial gain.

Imbalance in Work-Life Quality

If money is the sole motivator, employees may overwork themselves to the detriment of their health and personal lives. This can lead to burnout and health issues, affecting both the individual's well-being and their performance at work.

Cultural Misalignment

Companies that use money as the main motivator may find it difficult to build a strong corporate culture. A culture built on financial incentives alone may lack the depth needed to unite employees around a common mission and values.

Increased Stress Levels

A focus on financial rewards can create a high-pressure environment where employees feel constantly stressed about hitting financial targets to obtain their bonuses or salary increases.

To prevent an overreliance on extrinsic motivation and foster a more balanced motivational strategy, leaders can adopt the following solutions:

1/ Offer Meaningful Work

2/ Create a Culture of Recognition.

3/ Provide Opportunities for Growth

4/ Set Clear Goals and Expectations

5/ Empower Employees

6/ Foster Collaboration and Teamwork

7/ Ensure Work-Life Balance

8/ Implement Participative and Supportive Leadership

I share more details in my writeup here, alongside my model of the 6 Leadership Conversations.