The Role Money Plays in Engaging Employees

If you pay people more money, will they be happier? Possibly, but it really depends on what the money represents to each person.

Is money important to people? You bet it is. When individuals believe their organization exhibits high levels of Distributive Justice–the distribution of pay, benefits, and resources–these individuals tend to have higher organizational commitment, better job satisfaction, and a greater sense of well-being.


If you pay people more money, will they be happier? Possibly, but it really depends on what the money represents to each person and how it compares to their own internal benchmarks. Employers who rely solely on salary surveys and other objective data are often surprised when employees express dissatisfaction with pay that, on the surface, should be seen as fair.

Recently, author Daniel Pink and others have shed a new light on the role that money should–and should not–play in motivating people. The bottom line is that money is not a good long-term motivator and that if organizations want to keep their people focused on the right things, they need to pay people slightly above the going rate to take the issue off the table.

Money Means Different Things to Different People

We all know that people come to work for a variety of reasons, and that pay is one of them. But money always needs to be seen within the context of other, less tangible, motivators.

In our company we employ about 300 people and we have to have a highly competitive pay and benefits system. We work hard to maintain a fair compensation system and make sure that we’re paying people appropriately by differentiating exceptional from average performance. We need to remember, though, that money is very personal for people and that we cannot control or manage every employee’s relationship with money. One thing we’ve learned from business coaching is that each individual’s relationship with money is unique and if we address the money issue in isolation we are being short-sighted, because money is only part of a larger equation.

Three Reasons Why People Work


Legendary leadership consultant and author Warren Bennis suggests that there are three reasons people come to work. The first is to make money–we have to make money in our society to pay our bills, support our families, and ensure our future and our retirement. The second reason people come to work is to become contributing members of society–it feels better to work than it does to not work. The third reason that most people work is because they want to be a part of something bigger than themselves–to accomplish something bigger than one person alone can accomplish.

We’ve all known people who have a strong drive to make money and are very materialistic. These are the people who see money as a form of status and who have a drive to “keep up with the Joneses.” They have a very different relationship with money than those who choose service work for a career. These people may actually make decisions that go counter to making money, because they are more interested in making a contribution than in making a fortune. These are obviously two extremes, but they illustrate the idea that everyone has a unique relationship with money. Our job as leaders is not to try to “fix” this relationship, but to make sure that we pay people fairly given their role and industry standards.

Pay and Performance Reviews

Leaders also have an obligation to treat people responsibly and respectfully when it comes to pay and performance reviews. The overriding rule here is that there should be no surprises when it’s time to make an adjustment in someone’s pay.

If you really want to anger your people, create resentment, and cause a lot of trouble, use annual performance reviews as an opportunity to sit down and surprise employees with the news that they are only getting a four percent raise while everyone else is getting five percent. Sadly, this is the pattern we see happening in many organizations. Leaders in these organizations set goals, put them in a drawer, and wait until a year passes to have any type of discussion with employees about performance. Then they top it off by surprising their people with the news that they will be receiving less money than others.

When dealing with money, leaders need to be very careful and very proactive to make sure that they are not surprising people around this issue.


Your goal as a leader is to address compensation professionally, respectfully, and with as much transparency as possible. In this way, you can get the issue off the table and move on to the more important aspect of your role–equipping people to succeed in their jobs.

This approach works out in favor of the leader and the direct report also because success on the job, more than anything else, is what enables people to make more money in the long run. When people are overachieving and nailing their goals, they bring attention to themselves–not because they are complaining about how little they are making, but because leaders in the organization are saying, “If we lose that person we’re going to be in big trouble. We’d better make sure nobody else is going to run in here and offer them more money.”

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About the author

Scott Blanchard is the Executive Vice President of Client Solutions for The Ken Blanchard Companies®. Ken Blanchard is the best-selling co-author of The One Minute Manager® and 50 other books on leadership