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Money as a Motivator
SEPTEMBER 2014 · Jan Ketil Arnulf
Keywords: salary, motivation, performance

Of course, we are motivated by money. However, what else are we motivated by? It becomes necessary to find other ways to increase the stakes. Therefore, it is profitable for managers to be concerned with motivational psychology. 


The market is full to the brim of theories, recipes and consultants that help leaders motivate their employees. The simple answer is, of course, money.

Theories of performance-related pay and bonus systems therefore have a sizable share of the motivational market. There is, however, controversy about the impact and importance of such systems for performance in organizations. How far can we get with performance-related pay, can it have harmful side effects, and are there alternatives?

Money in the form of a salary has changed history and dramatically changed people's outlook on the world.

The magazine “Economist" revealed last year that while workers at the start of the industrial revolution worked in inhumane conditions, they still had it better than in the slave-like conditions in the countryside. That is why they came.

The transition to paid employment has meant increased prosperity and freedom for those who take part in it. In countries such as China and India, people continue to flow from hopelessness to marginally improved conditions because of paid employment. They go from poorer to richer regions, from lower to higher education and from dying to thriving industries.

The prospect of better wages drives a large global migration and motivates young people around the world to fill schools of all types in hopes of a more prosperous future.

With such a powerful motivator as money available, maybe managers should not need anything else. Why is it not enough to portion out money in a sufficiently clever way to achieve competitive motivation?

The answer is due to a statistical phenomenon called "restriction of range": If everyone gets the same treatment, it no longer explains the differences between the participants.

To take an example from another area: Intelligence explains most of the differences in people's school results except at University. Is it a bit strange, that people will usually assume that intelligence should be particularly important at the highest education levels? The reason is just that–since intelligence of a certain level is required to enter (the most unintelligent are not present) there is no variation left. Then other issues become more important: Self-discipline, motivation or culture.

In a mature market, work of the same value will receive the same pay. The employer cannot pay for better motivation; this only leads to lower profitability. He also cannot to any large extent withhold money until the results are available (performance pay), because employees can go to more reliable payers. This removes variation in pay beyond pure market fluctuations, and reduces wages as an economic explanation for different achievements between competing firms.

This is where psychology takes over as an explanation. The question of “money, and what else" is quite literal. When the most powerful motivators for people's behavior lose their power because everyone has them, it becomes necessary to find other ways to increase the stakes.

For the most financially interested, there is again some leeway in trying to tweak salaries. In some places that works, but here is the main reason why leaders should take an interest in psychology: Will the employees' brains be able to respond as desired to the different forms of payment?

In 2000, the psychologist Daniel Kahneman received the Nobel Prize for having demonstrated exactly this: The human brain can be influenced by money, but we have no precise sensory organ for the most intricate calculations.

We work for money, but for many other things too, such as the feeling of self-respect, camaraderie, sense of achievement and purpose. It is the interest in this side of human beings that provides increased value in a developed economy. Therefore, it is profitable for managers to be concerned with motivational psychology.

Generally, the public assumes that BI researchers share bourgeois views of the world, but colleagues of mine were recently denounced as "closet radicals.” The reason is that views on the value of money as motivation and control factors at work quickly lead into political beliefs.

The issue of money as motivation is at its core neither political nor psychological. Logic, statistical sense will get your far.

Translated by SONG Hui, Edited by PAN Qi

Jan Ketil Arnulf
Associate Professor at BI Norwegian Business School and the Associate Dean of the BI-Fudan MBA program. His education is from the University of Oslo, Norway and the Freie Universität Berlin, Germany. His research on management team has been awarded a price, and he is at the editorial board of the scientific journal “The Leadership Quarterly”.
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