The importance of motivation and goal setting in today’s business cannot be overstated. The setting of goals is important to guide a company and its’ employees toward defined objectives, while motivation is important because it is the psychological catalyst employees and owners require to reach a goal.

Motivation at work, at first glance, does sound like an essential component of every business – it is very valuable for employees since it empowers them and makes them more engaged with their work, which is expected to result in higher productivity, increased revenue, cost savings and more value created. When companies have unhappy, unmotivated employees, productivity and work relationships may suffer as a result; which is why business owners often fret about the best way to increase their employees’ motivation.

In behavioral theory, there are roughly two major sources of motivation in the context of job performance:

  • External or extrinsic, which deal with physical or monetary rewards, such as bonuses or child care;
  • Internal or intrinsic, where rewards meet a psychological or personality need of employees, such as feelings of validation or pride in a job well done.

Although many companies focus on external motivators, addressing internal motivators is equally important, because external motivators tend to become less effective over time.

Different companies have developed various methods to increase their workers’ commitment and satisfaction, depending on their job type, size, organizational values, etc. Still, the best known and most used motivator in many companies remains money – be it raises, bonuses, or stocks – for managers all over the world these continue to be the recourse for boosting their people’s morale. The reason for that is the fact that it’s the easiest thing to do: if someone does something good – give them money; if they don’t – tell them they’ll get the money if they do. This actually does work in many cases, but only up to some certain limits. For less paid jobs, incentives in the form of money often make a crucial difference, because it often sways the choice of staying or leaving. Still, not many people will do a job that makes them feel unhappy for long – and this is exactly where extrinsic motivators lose their importance and internal factors start playing a role.

Imagine that, when your employees arrive in the morning, you present them with three coupons, each promising a different reward if they get everything done that day: one that says they’ll get a cash bonus, another promises that you will give them a rare compliment; and the third offers a voucher for free pizza. Which of these do you think would motivate them to get the most done?

In a study led by Dan Ariely, it turned out that most of the subjects would opt for pizza; with compliments coming in at a very close second. In fact, the cash bonus ended up costing the company more and resulted in a 6.5 percent drop in productivity, meaning that, from the employer’s perspective, a cash bonus was worse than offering no incentive at all. Over the course of the workweek, the output of workers who got either pizza or compliments slowed a little, becoming by the end of the week closer to the productivity level of the control group (but still better than no incentive). All told, the compliment proved to be the very best motivator, though Ariely thinks that if the experiment had gone the way he wanted, pizza would’ve fared best. (His initial suggestion was to deliver a pizza to the home of any employee who hit their target. “This way … we not only would give them a gift, but we would also make them heroes in the eyes of their families,” he writes.)

As much as this experiment appears to be funny and movie-like, it actually very nicely illustrates the narrative about what truly motivates people. Social factors, such as gratitude, also play a substantial role in happiness and motivation at work. This is not to say that fair pay isn’t important – of course it is; but the point is that it’s not the only, or even the best, motivator for employees.

But how is this explained? Adam Grant, the Wharton professor, has explained that the motivational power of money and prestige at work fade more quickly than a sense of appreciation. “Extrinsic motivators can stop having much meaning — your raise in pay feels like your just due, your bonus gets spent, your new title doesn’t sound so important once you have it,” he told The Wall Street Journal last year. “But the sense that other people appreciate what you do sticks with you.” This is very different for remote organizations where it is much harder to motivate employees.Therefore, many remote organizations use remote employee monitoring solutions - based on which they determine the proper reward and motivations for their employees

In conclusion, it’s important to restate that if you want your people to do their job properly, a necessary condition is to provide them existential security and a healthy atmosphere. However, at the end of the day it turns out that we’re all just a bunch of school kids, wanting to be acknowledged by superiors and have some free food in the meantime. After all, maybe you should consider introducing some Pepperoni Thursday before that Casual Friday everyone’s so crazy about!

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