What Are the Advantages & Disadvantages of Using Money to Motivate Employees?

by Luke Arthur; Updated September 26, 2017

Money is a common tool to motivate employees. If your primary strategy for motivating employees is to give them financial bonuses or raises, the results could vary. While motivating with money does provide some advantages, it is not the only way that employees can be motivated effectively.

Universal Reward

One of the advantages of using money as a motivational tool is that it is a universal reward. Money can be used equally by all employees to provide benefits. Instead of providing a specific reward that some people may not be motivated by or enjoy, money can be used to purchase many things. To some people, more money may equate to a new car. To others, it may represent a vacation. Both sets of employees may be motivated even though they plan on using the money for different items.

Simple

Another reason that you may want to use money to motivate employees is because it is simple to use. When you give a financial bonus to an employee, you know exactly what the bonus is worth. This makes it simple when taking a tax deduction for the amount you give the employee. If you give tangible property, you have to determine the fair market value of the item before your business can take a deduction.

Will Not Last

One of the problems with using money to motivate employees is that the motivation does not last. According to Entrepreneur magazine, giving bonuses can motivate employees to a certain extent, but this motivation does not last. Status and recognition are typically more effective at motivating employees over the long term. If you need a short boost of productivity from your employees, offering a bonus may help. If you want long-term results, a bonus usually does not help. A study from the Journal of Extension shows that the top motivational factor for employees is having interesting work and not wages.

Cost

Another drawback of using money to motivate employees is that it is costly. Every time you offer a bonus or raise to employees in exchange for performance, you have to give up some profit. Many effective motivational techniques do not involve money. For example, giving an employee recognition in front of others or giving extra time off might work just as well. Providing a prestigious title can also help motivate employees without costing you money.

About the Author

Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.