The Financial & Non-Financial Theories of Motivation

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Money is certainly a powerful motivator, but it's hardly the only incentive that will inspire your staff to do good work. Financial rewards may be an obvious important way to attract and keep workers, but if their work is grueling and meaningless, they can end up hating their jobs and staying only for the money.

TL;DR (Too Long; Didn't Read)

Financial and nonfinancial motivation theories explore the effectiveness of different types of reward systems for encouraging employee retention and quality work.

Financial Rewards to Motivate Employees

  • Pay scale. Working for a paycheck is a well-worn cliche, but it's also entirely true that many people would rather be sitting on the beach, sleeping, visiting with their families or doing just about anything rather than working. Wages and salaries are what get people to come to work. Paying people fairly isn't just a practical necessity, it's also a sign of respect, especially if it's obvious that your company is making plenty of money.

  • Benefits. As with monetary pay, employees need benefits such as health care and sick time for practical reasons. In addition, your business is more likely to thrive if its workers are healthy and don't expose customers to communicable diseases. Providing benefits also communicates to your employees that they are valued and that your business cares about them as human beings.

  • Commissions and bonuses. This financial reward strategy links compensation above a base amount to performance. Employees may earn a percentage of sales or may receive a flat amount once a milestone is achieved. Financial motivation theory assumes that the promise of greater financial return will encourage staff to work harder.

  • Profit sharing and stock options. These approaches give employees a real stake in contributing to a more successful company. Unlike commissions and bonuses, which may be tied to individual performance or metrics that reflect output but not necessarily the company's bottom line, profit sharing and stock options motivate your employees to work together as a team. 

Nonfinancial Workplace Motivators

  • Company culture. Full-time employees spend a significant portion of their waking hours at work. If your business has a strong and inclusive culture along with an enjoyable work environment, many will choose to stay even if they could earn more money elsewhere. It takes genuine engagement and authenticity to build the kind of company culture that inspires this kind of loyalty.

  • Learning opportunities. Ongoing learning makes work interesting. It makes the day go by faster, and it helps employees to feel that they are growing personally during the hours that they are also earning a living.

  • Advancement opportunities. A job with a clear path forward toward career investment is more likely to motivate an employee than a dead-end job with endless repetitive work. Your employees will be more engaged if they see opportunities to move up within the company than if they see you always recruiting outside managers.

  • Job security. Whether or not your employees plan to stay with your business for their entire working lives, they appreciate knowing that their positions are stable, and you're unlikely to fire them frivolously or lay them off as soon as cash flow gets tight.

Financial vs Nonfinancial Motivation

The American psychologist Abraham Maslow developed a theory of human motivation that effectively explains the difference between financial and nonfinancial rewards. Maslow developed a pyramid explanation of human needs, with basic physical needs such as food and shelter at the top and needing to be met first and higher-level needs such as creativity and self-actualization coming later once the primal needs are met.

There is no question that financial incentives motivate workers at the most basic level of coming to work and earning enough to support themselves and their families. However, when it comes to financial perks, one job is essentially the same as any other as long as they offer the same pay and benefits. Nonfinancial rewards are what distinguish one job from another, inspiring a higher level of loyalty and creativity.

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About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.

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