What Is Better for Performance, Money or Meaningful Work?

it's raining money

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It’s funny how employers want intrinsically motivated employees but simultaneously believe employees will perform better and be happier if they are given bonuses. Though we all need our paycheck in this world, does it drive our performance, and does it help us thrive at work? A lot of research seems to show that pay-for-performance does improve performance. But what this research has not taken into consideration is that more complex jobs (for example, demand expertise knowledge, the processing of a lot of information, and problem solving) and that offer more autonomy in decision making (for example, managerial roles) are remunerated at higher levels and tend to be remunerated based on meeting performance targets (for example, bonuses).

This implies that the research showing pay-for-performance improves performance may have missed an important confound: the design of the job. We know from past research that work design has substantial effects on work motivation. To determine if it is the pay or the motivating design of the job that determines performance and affects well-being, I collaborated with researchers in Australia and Europe to find the answer. Across three samples of workers, we compared the contribution of compensation (how much you earn and how much is performance-contingent) and work design (how complex or varied the job is, how much autonomy you have, and how much feedback you get) in explaining the motivation, performance, and well-being of the workers. We examined how each relates to people’s autonomous motivation—the energizing “I want to do this” feeling that comes from interest or personal value—because this type of motivation drives performance and well-being more than extrinsic forms of motivation (that is, I do it for the money). We also examined the workers’ performance (proficiency, adaptivity, proactivity) and well-being (thriving, burnout/exhaustion, or stress). Here is what we found.

1. Work design consistently beats pay. Day-to-day features of the job itself were the stronger “engine,” promoting autonomous motivation, performance, and well-being at work.

2. Performance-contingent pay does not drive motivation and performance much once job design is considered. In some of the samples, incentives reduced adaptive performance and thriving. This is consistent with past research showing that incentives can reduce autonomous motivation by negatively affecting one's sense of autonomy.

What recommendations can we draw from this research?

• Put your money on good work design rather than complicated pay systems. Give people meaningful, stimulating work that allows them to make some decisions (either themselves or through participative management) and provide them with constructive feedback. These are the levers most likely to lift motivation, performance, and well-being because it satisfies employees' needs for competence, autonomy, and relatedness.
• Keep monetary incentives modest. Heavy reliance on pay-for-performance can backfire—especially when adapting to change.
• Don’t neglect fair base pay—but don’t expect it to do the motivational heavy lifting. Ensure a secure, fair salary (for equity and basic needs) so employees can focus on their work, not whether they will be able to pay the bills this month.