The Carrot or the Stick? Investigating the Functional Meaning of Cash Rewards and Their Motivational Power According to Self-Determination Theory

Abstract

As much debate exists concerning the beneficial effect of using financial incentives to motivate employees in the scientific and practitioner literature, the current research explored employees’ perceptions of the cash rewards they receive at work to better understand their motivational impact. A model based on self-determination theory and its postulates concerning the functional significance of rewards was tested in two studies, one with Canadians and another with international workers. Results from path analysis indicate that through their impact on employees’ psychological needs, cash rewards perceived as informational lead to healthier forms of motivation, greater psychological health, and better overall work intentions than cash rewards perceived as controlling. These findings suggest that compensation plans must be carefully studied, designed, and implemented with the workforce to avoid overemphasizing the reward contingencies in employees’ eyes, having a deleterious impact on their motivation, and giving rise to unwarranted consequences on their psychological health and work behaviors.