Leadership: Leaders, Followers, Environments

Compensation and motivation

What might be said about the effects of compensation on motivation? Pay is typically the chief organizational vehicle to address the need of individuals to get ahead and gain social status. Higher pay is strongly correlated with position and rank within an organization. To be sure, money is not the only motivator of performance or commitment to goals. It may not even be among the most important incentives for some people, especially those with an adequate level of pay, people close to retirement, or individuals with other (nonmonetary) concerns such as family responsibilities or geographical considerations. However, for most people, pay is a critical motivator.⁴⁷

Some surveys indicate that workers report they don’t rank pay very highly among the things they value in their jobs. This has been used to suggest that compensation is not an important motivator in organizations. However, what people say they do in response to surveys and how they actually behave—what they actually do—can be notably different. Careful studies of actual employee behavior indicate that monetary incentives powerfully influence the organizational objectives people choose to pursue and the effort they apply toward those goals.⁴⁸ Managers use both financial and nonfinancial incentives in motivating and retaining employees. However, it is erroneous to conclude that monetary rewards are not important determinants of actual behavior and performance in organizations.⁴⁹ Acknowledging the ...