Compensation & Benefits | January 23, 2014

Cash is Not King When it Comes to Employee Engagement

The misconception of cash as the ultimate motivational tool can create a problem with reward and recognition programs whose purpose is to increase employee engagement. While most enjoy a little variable pay now and again, cash is not the end-all be-all motivator that it’s cracked up to be—at the end of the day cash is compensation, not motivation, and employees know in their gut that the two things are mutually exclusive.

But if an employee believes their compensation is inadequate, can it affect their engagement? Of course it can. Frederick Herzberg, noted authority on employee motivation, called this concept the motivation-hygiene theory. Herzberg saw two different needs of human beings at play in the workplace. One set of needs had to do with our extrinsic biological needs for material things, e.g. we need food, so we get a job and earn money to buy it. The other dealt with our intrinsic psychological need to achieve things, and through achievement experience psychological growth.

By separating extrinsic factors from intrinsic factors, Herzberg began to see that people were overwhelmingly more motivated by intrinsic factors like achievement, recognition for achievement, and growth or advancement than extrinsic factors like working conditions, salary, and status. He found that extrinsic factors only created job dissatisfaction when they fell below a certain level of what workers expected from industry norms, and as soon as companies met those norms, their motivational power reached an upper limit and incremental investments from then on wouldn’t contribute to overall job satisfaction. On the other hand, he found that intrinsic factors have no such upper limit and will always motivate employees. For this reason, he dubbed extrinsic rewards “hygiene” factors, or the basic daily expectations of the workforce that must be met before you can truly motivate them.

Hygiene factors, while important, have little to do with employee engagement. Engaging employees isn’t about simple compensation. It’s about satisfying their intrinsic need to achieve and grow as people. So while a cash bonus may be just the ticket for reaching short-term sales goals, it’s hardly something to rely on as a long-term engagement strategy. Cash may be king in many aspects of life, but it doesn’t have the mileage or durability of intrinsic rewards like respect and recognition, which is why a successful long-term engagement strategy must bring more to the table. As our good friend Jack “Papa Jack” Welch reminds us, “…very few good people will stay in a job just for the paycheck. They also need to feel that they matter and what they do for eight hours a day or more means something.” Herzberg would agree.

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