Does Making More Money Make You More Productive?

Humans are driven to do things by two prominent types of motivation: intrinsic, or internal motivation, and extrinsic, or external reward-based motivation. Intrinsic motivation comes from someone finding pleasure in something, i.e. learning to drive a boat because you love boating. On the other hand, someone who is extrinsically motivated would learn to boat so they could start making money from it.

And money is, perhaps, the most compelling extrinsic motivator. Most of us need a certain amount of money to sustain a comfortable way of life, and therefore, we must work. And people continue to work until they’ve saved enough to retire, or give up working for other priorities, like raising a family, going back to school, etc.

But is there a point at which we stop needing more money? What do we actually consider “enough?” It’s estimated that Americans consider anyone with a net worth of over $2.4 million to be “wealthy,” and to be “financially comfortable” people need $1.4 million. But most people work on an average salary that is much lower, with less than 10% of Americans having a net worth over $1.4 million. In reality, the majority of people continue working for most of their lives to create or maintain a certain quality of life for ourselves and their families.

But if we’re clocking into work with the hopes of making money, is the promise of making money our biggest motivator to perform at work? Or is there something else there? A study published by Harvard Business School revealed something interesting about the way people responded to money. People who were originally promised a set salary, and then given a 33% increase, reported greater productivity than those who were given the higher salary to begin with.

So what does this tell us? In the report, it says that the additional salary boost “signaled that we had done something nice for them which they may want to reciprocate.” And the way employees reciprocated was with higher output, resulting in a 20% productivity boost — a pretty substantial bump. This mentality of using an increase, or raise, on the expected salary as a productivity booster and motivator makes sense. The employee will feel valued, rewarded, and happy, and will be driven to continue performing at a high level in anticipation of future rewards.

Happiness is another component to consider in pay increases and productivity. Employees who are happy are generally 12% more productive, which we explored in a previous post about employment’s effect on happiness. So it would make sense that, as salary and reward for high performance increased, so would happiness, and therefore productivity.

This thesis is cemented by the reverse: people who are being underpaid do experience negative effects both in mental health, happiness and productivity. The National Bureau of Economic Research found that people are much less satisfied with their work when they’re underpaid, and it increases resentment and anger. It’s also estimated that people who are being underpaid are 2X more likely to experience depression and anxiety. These are all happiness and productivity killers.

But is there a point of diminishing return for a constantly increasing salary? According to information published on Inc, “peoples’ levels of happiness only increase as income increases up to a point, after which there are reduced benefits to happiness as you increase your income.” That point is estimated to be $80,000, as you’re able to afford basic necessities plus a bit extra. When you reach $800,000 a year, the data assumes that the things you have get nicer, but you have to work harder for them and you lose time with friends and family. Less time with friends and family equates to lessened happiness and decreased mental health, which then decreases productivity.

Feeling valued properly in your job and advocating for the right salary are definitely tricky territory, but because they make such a big impact on your productivity and mental health, you should feel comfortable discussing compensation with your colleagues and supervisor. If you feel like you’re underpaid, a good starting point is gathering intel from resources like LinkedIn and Glassdoor about what other people in a similar position are being paid, and even talk with colleagues if you’re comfortable. There are also other great resources like Glassdoor’s “Know Your Worth” tool that you can utilize to calculate your value in the market.

What are your thoughts on how salary and money affect productivity? Let us know in the comments below.