Does money enhance employee engagement?

When motivation goes off the rails, identifying the trap is they key. Photo: Noor-A-Alam

It was the first day of Sara's new job at a prestigious tech company. She was thrilled not only because of the high salary but also because the role promised opportunities for innovation and growth. 

A few months into her position, however, Sara began to feel disconnected. Her work was repetitive, her manager rarely acknowledged her contributions, and there was little room for creativity. Despite her impressive paycheck, Sara started contemplating leaving the company. This story reflects a common workplace reality: money alone cannot guarantee engagement.

The relationship between compensation and engagement has puzzled organisations for decades. Many assume that higher salaries automatically lead to more motivated and productive employees. However, the reality is far more nuanced. 

Drawing on Frederick Herzberg's Two-Factor Theory, I analysed the dynamics during my decade-long experience in a digital technology company and arrived at a resolution to the dilemma: Does money enhance engagement?

The philosophy involves categorising workplace engagement into two core variables. The first is obvious expectation factors, which include extrinsic elements such as salary, bonuses, incentives, monetary recognition, and working conditions. These represent the basic and evident expectations of any employee upon joining an organisation. 

The second is managed expectation factors, which encompass intrinsic elements like recognition, motivation, job value creation, and personal growth. While these are also legitimate expectations, they require deliberate effort to be effectively managed and fulfilled. 

Although obvious-expectation factors help prevent dissatisfaction, they do not necessarily enhance satisfaction. In contrast, managed expectation factors play a direct role in influencing engagement and fostering job fulfilment.

I have witnessed many employees leave organisations despite receiving very high compensation levels, recent promotions, or even multiple salary increments within a single year. None of these obvious expectations—such as promotions, higher pay, or frequent salary increases—were enough to prevent their departure. 

In contrast, there were employees who grew alongside the organisation, were guided to understand the value their work created, and were motivated through transformational opportunities. These individuals remained loyal to the company and continue to thrive there to this day.

Money, as a hygiene factor, plays a vital role in ensuring employees feel secure and valued. Underpaying employees or offering compensation that feels inequitable can lead to dissatisfaction, low morale, and even turnover. For example, research shows that employees who perceive pay disparities in comparison to their peers often lose trust in their organisation, regardless of their actual salaries. 

On the flip side, fair and competitive pay helps establish a baseline of trust, enabling employees to focus on their roles without worrying about financial stability. However, Herzberg's theory underscores that beyond this baseline, money's ability to drive engagement is limited.

A closer look at Sara's situation reveals why. Despite earning a high salary, she lacked intrinsic rewards such as recognition, autonomy, and opportunities for growth. These intrinsic rewards are the true drivers of engagement because they align with deeper psychological needs. 

Employees want to feel that their contributions matter, that they have the freedom to make decisions, and that their work serves a meaningful purpose. When intrinsic motivators are absent, even the most attractive financial rewards fail to sustain engagement over time.

The interplay between intrinsic and extrinsic rewards is crucial. While money is an essential hygiene factor, it complements engagement only when intrinsic rewards are effectively recognised and designed. 

For instance, organisations that offer performance bonuses tied to meaningful achievements—such as innovation or team collaboration—tap into both extrinsic and intrinsic motivators. Such strategies not only incentivise results but also reinforce an employee's sense of purpose and contribution. 

Conversely, workplaces that focus solely on financial incentives often create a transactional culture, where employees work only for the paycheck and disengage when intrinsic needs are unmet.

One illustrative example is Google, renowned for its ability to balance extrinsic and intrinsic rewards. Google offers competitive salaries, but what truly sets the company apart is its focus on intrinsic motivators. Employees are encouraged to spend 20% of their time on passion projects, fostering autonomy and creativity. 

The company also invests in professional development and ensures that contributions are recognised through peer nominations and leadership acknowledgements. This combination of fair compensation and meaningful intrinsic rewards has helped Google maintain high levels of employee engagement and innovation.

Organisations must address hygiene and motivation factors to design a balanced reward system. First, they must ensure fair and transparent compensation to avoid dissatisfaction. Second, they need to cultivate a workplace culture that prioritises intrinsic motivators such as recognition, growth opportunities, and a clear sense of purpose. Leaders play a pivotal role in this process by empowering employees, celebrating achievements, and aligning individual goals with the organisation's mission.

These two factors—obvious expectation (extrinsic) and managed expectation (intrinsic)—ultimately remind us that while money is essential, it is not a standalone solution for engagement. Organisations that rely solely on extrinsic rewards risk fostering a workforce motivated primarily by financial gain rather than a genuine connection to their work. True engagement thrives when employees are supported both extrinsically and intrinsically, enabling them to feel valued, fulfilled, and inspired.

In Sara's case, her disengagement could have been prevented if her company had paired her competitive salary with meaningful intrinsic rewards. When intrinsic motivators are prioritised alongside fair pay, employees like Sara not only stay but also thrive. Herzberg's insight still resonates today: to foster engagement, organisations must go beyond the paycheck and create an environment where employees can truly excel.

Faisal Imtiaz. Sketch: TBS.

Faisal Imtiaz Khan is the ex-Chief Human Resources Officer of Robi Axiata and is currently teaching at a college in Canada.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.