Reward and Recognition: How money can work as a de-motivator

Billy Byrne’s recent article published in the Business Post discusses how monetary rewards are not always the best way to recognise good employees. Read it below.

In his book “Predictably Irrational’’, Dan Ariely argues that money is very often the most expensive way to motivate people. I’d like to go one step further by arguing that money is also the most expensive, and surprisingly effective, way to demotivate people.

Consider yourself in the following scenario: You’ve been asked to give a guest talk at a business event. To accommodate this, you’ve had to do some rescheduling of your diary and put in some time at the weekend putting your notes together.

The talk is well-received and afterwards the host comes over and thanks you with a gift-wrapped bottle of wine and a handwritten thank you card. The wine is pretty good, probably a €40 bottle. How does this make you feel?

Ok. Now consider this alternative ending. After the talk the host comes up to you and asks you to send in an invoice for €40. So, how do you feel now?

Rationality isn’t a choice

If you were a purely rational creature, then you would treat both of the above outcomes equally (i.e. you could just as easily buy a bottle of wine with the payment received). However, if you’ve read any of the research by Daniel Kahneman or Richard Thaler you’ll know by now that we’re certainly not as rational as we give ourselves credit for.

So, in the example above, why should we feel so differently about one outcome versus the other?

Well, for one thing, there is a fundamental difference in how we view different types of reward and recognition. In the first case, when we are thanked and given a gift, this represents a Social Relationship, whereas in the case of being asked for an invoice, this is a Market Relationship.

What does this relationship mean to you?

In a Market Relationship we do something for a monetary reward. This automatically draws us into a market comparison as we tend to make a judgement regarding whether the monetary reward is a fair market value.

This is not as simple as it sounds as we are often comparing apples and oranges. In effect what we are judging is whether the reward we have received is a fair market value for what we have done. How might I gauge this in our example? Perhaps my normal hourly rate? Or the size of the audience? Or perhaps, the size of the sponsoring organisation (they can afford to pay a lot for this, right?)

In contrast when we have a Social Relationship, we undertake to do something not for monetary reward, but for some relational good.

In our example, the personal recognition of our efforts by the host is valued by us. We are not doing it for monetary benefit. Think of the many things you do and for which there is no direct monetary reward. Perhaps you mentor new colleagues to help them to settle into the organisation. Or you volunteer two evenings a week to coach the local football team.

Recognition versus reward

What is worth considering is the role of Recognition versus Reward. As “social beings” we all seek some level of recognition of who we are and what we are doing. We want to feel valued and appreciated and yet this is often overlooked in favour of monetary reward.

When we move from reward to recognition, we need to consider that what works as reward may not work quite as well when it used as a form of recognition.

Take an employee bonus scheme as an example. Let’s say my manager meets me to let me know I’m going to receive a bonus of €500 for a project I’ve been working on with others in the department.

I was happy to be on the project and wasn’t expecting anything extra – I enjoyed the challenge of the project and the opportunity to work with others on this. I’m feeling very pleased as I head back to my desk. On my way I pass by a colleague and inadvertently overhear her on the phone telling someone about the €1000 bonus she’s received.

My initial happiness suddenly evaporates. I’m €500 better off than when I arrived at work this morning but I’m now unhappy because I feel I haven’t been rewarded fairly for my efforts. I mull over how foolish I was to have put in all of that effort. I have more money but I’m less happy.

People need to be rewarded, and they also need recognition. However, conflating the two can lead to unintended outcomes that may be hard to reverse. Once you begin to use money as a form of recognition, you are introducing a market relationship and it’s difficult to return to a social relationship at a future date.

As Jennifer Garvey Berger points out in her book, “Simple Habits for Complex Times”, it’s hard to recover when a social relationship turns into a market relationship.

Engage and motivate

So, whenever we are looking at how we engage and motivate others, it’s worth asking ourselves whether we are in the Reward sphere or the Recognition sphere. It’s worth reflecting on how we recognise effort and contribution – not just economic contribution but also the social contribution to the team and the organisation.

Look at the types of positive behaviour that should be reinforced and consider how these can be recognised. Don’t rely on the performance management system to be the silver bullet of motivation. Sometimes a genuine “thank you” is the best form of recognition possible (and the least expensive).

The bottom line – don’t spend money on demotivating people.


Billy Byrne is an IMI associate on the High Impact Leadership programme. He is an executive coach, leadership development specialist and an associate at KinchLyons.