FAYETTEVILLE, Ark. - A University of Arkansas researcher and her colleague have found that when it comes to work incentives, money really does talk - but the message depends upon the amount of cash.

Their research refutes some business consultants’ claims that financial incentives - such as pay raises or bonuses - will have no effect on employee performance.

"There are a whole lot of people out there who would like to believe money doesn’t matter," says University of Arkansas professor of management Nina Gupta. If this were true, managers could justify minimal raises and fewer incentives.

Gupta answers these people by suggesting that they take a 50 percent pay cut. "They would scream," she said.

However, financial incentives must be used properly if they are to motivate people, Gupta said. If the reward appears too small, it may have a negative effect. In a 1995 study of 192 college students hired to work and subsequently given varying percentage raises, Gupta and her colleagues found that most people didn’t consider a pay increase significant until it reached 6-7 percent of the base pay. Employees’ motivation and performance lagged if the raise fell much below that mark.

"It’s not simply dollars. Beyond that money has a lot of symbolic meaning," Gupta said. People often think the amount of money they earn reflects their worth. They also use money to elevate their status in society.

To show the link between money and motivation, Gupta and Atul Mitra of Lyon College in Arkansas surveyed research correlating financial incentives and work published in major journals over the past 40 years. They examined 39 studies and analyzed how well each proved its point.

Their findings debunked four myths about the value of money in work situations and called into question another, the two report in the autumn issue of the American Compensation Association Journal.

 

Myth 1: Money does not motivate.

Gupta and Mitra’s research shows a strong relationship between financial incentives and employee performance.

 

Myth 2: People do not value money.

If people cared nothing for money, then there should be no relationship between financial incentives and employee behavior, Gupta said. But many studies show people performing tasks better when offered more money to do so.

 

Myth 3: Financial incentives are punishing.

Time and again when examining the studies, Gupta found money generated positive behavior from employees. These results held true in research based on laboratory experiments, work simulations and companies, she said. The relationship between financial incentives and amount of work completed also held true for both boring, repetitive work and work employees reported as interesting.

 

Myth 4: Financial incentives undermine intrinsic motivation.

In the 1970s, a group of researchers gave children rewards to do things they enjoyed doing. After a time the children stopped doing the things they previously enjoyed - unless a reward was offered.

Many researchers have used this research to say the same link applies to adults in the workplace.

"From this study, some people infer that people lose interest in their work," Gupta said. "It’s a big jump to take little kids and extrapolate to the work force."

The analysis performed by Gupta and Mitra showed time and again, in studies of workers, that employees performed better when offered more money, whether they enjoyed the task or not.

Myth 5: Financial incentives erode performance quality.

Not enough studies have been done to determine the relationship between financial incentives and performance quality, Gupta said. However, she included a small number of research papers, which seemed to indicate that financial incentives had no effect - positive or negative - on performance quality.

Although money motivates, managers should use it wisely to effect positive change in the workplace - as research on raise perception shows. Prior planning and ongoing attention to financial incentives plans can help companies - and their employees - put their money where their mouths are.

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