Are you a company manager considering increasing your employees' salaries to motivate them to work better? Do you believe that an additional financial incentive is the optimal solution for boosting productivity and loyalty?

At first glance, this assumption seems perfectly logical. After all, money is the most obvious motivator. But what if we told you that this common belief might be incomplete in its understanding of the real mechanism that drives employee performance? What if the relationship between incentives and performance isn't direct, but there is a hidden and crucial factor that acts as a mediator between them?

In this article, we will reveal a surprising truth based on research: job satisfaction is the real engine of performance, and rewards are merely a tool to enhance that satisfaction, not performance directly.

Job Satisfaction as a Full Mediator between Incentives and Performance

It has long been assumed that the relationship between financial incentives and employee performance is a direct and linear one, where an increase in reward is presumed to lead directly to an increase in performance. However, research has presented surprising findings that challenge this prevailing understanding.

Recent studies have shown that the direct effect of incentives and rewards on employee performance is "insignificant" or "not statistically significant." In contrast, research has confirmed a direct and strong relationship between incentives and rewards and job satisfaction. This means that employees who receive incentives and rewards experience a significant increase in their job satisfaction.

Most importantly, the same studies found a significant direct effect between job satisfaction and employee performance, which indicates that employees who are satisfied with their jobs tend to perform significantly better.

The interaction between these two relationships reveals the true mechanism: job satisfaction acts as a full mediator in the relationship between incentives and performance. In other words, rewards do not directly affect performance; their influence passes through job satisfaction. An increase in incentives leads to an increase in job satisfaction, which in turn leads to an increase in performance

Incentives Beyond Salary: The Power of Integrated Rewards

The findings show that management that relies solely on monetary incentives misses a great opportunity to enhance long-term job satisfaction and performance. A deeper understanding of motivation requires distinguishing between the types of rewards and the role of each:

1. Monetary Incentives: A Necessity to Prevent Dissatisfaction

Monetary incentives (such as salaries, bonuses, and allowances) are considered essential for meeting employees' basic needs and preventing feelings of dissatisfaction. They serve as the cornerstone upon which any employment relationship is built. However, their effect on long-term motivation is less intrinsic and may be temporary or conditional on a material goal.

There is another risk: monetary rewards may undermine intrinsic motivation in tasks that require creativity and are complex. When a creative task is linked to a financial incentive, an employee's focus may shift from the internal satisfaction that comes from solving the problem to the desire to obtain the external reward only.

2. Non-Monetary Rewards: Intrinsic Motivators for Performance

Non-monetary rewards, which are not directly tied to money, show a positive and significant effect on performance because they noticeably enhance job satisfaction. These rewards include:

• Recognition and Appreciation: Such as public praise or "Employee of the Month."
  
  

• Professional Development Opportunities: Such as training, workshops, tuition reimbursement, and mentorship programs.
  
  

• Promotions: Which provide greater responsibilities and higher social status.
  
  

• Flexible Work: Such as remote work options or flexible working hours.

Research has shown that these factors have a positive effect on job performance and are intrinsic motivators for job satisfaction and long-term motivation.

Building Effective Reward Systems: Justice and Transparency

Applying these insights requires more than just changing the types of rewards; it requires a radical transformation in how performance is managed, with a focus on fairness and transparency.

Organizational Justice: This refers to the extent to which employees perceive workplace procedures, interactions, and outcomes to be fair. The feeling of justice directly affects attitudes and behaviors at work, while injustice leads to tangible negative outcomes, including decreased performance, increased employee turnover, and even destructive behaviors.

Transparency: Transparency in the criteria and distribution of rewards is the core of justice. When the rules are clear to everyone, feelings of trust and fairness increase, and feelings of injustice and bias decrease.

Conclusion

Research evidence has revealed a fundamental truth: financial incentives are not the direct driver of employee performance. Rather, they operate through a crucial and sensitive gateway: job satisfaction. Job satisfaction, which is not achieved by rewards and incentives alone but by the employee's overall experience, is not just a goal of humane management; it is a full mediator and a strategic driver of sustainable performance.

The future of motivation in the workplace extends far beyond salary, lying in the design of an integrated and holistic rewards system. This system must balance the material components necessary to prevent dissatisfaction with the non-material components that enhance long-term intrinsic motivation. Organizations that value, develop, and treat their employees with fairness are the ones that will achieve long-term success, because they realize that beyond salary lies the true motivator.