Inflation vs. Motivation: Evidence-Based Strategies to Motivate Employees when You Can’t Give Them a Raise

Article at a glance

With rising inflation, companies face a challenge of what to do about their employee's salaries and how to keep people satisfied, motivated, and feeling financially safe.
Money isn’t the most effective way to increase employee engagement. Neither does it have a significant impact on happiness.
There are seven things you can do to increase employee engagement, retention, and well-being without the need to raise salaries.

Inflation vs. Motivation: Evidence-Based Strategies to Motivate Employees when You Can’t Give Them a Raise

With inflation rising in many countries, managers and HR departments are wondering what to do to keep their employees motivated and happy. The straightforward solution is to give everyone a raise. However, not only is that not feasible for many organizations, but it’s also not a good long-term solution from an economic perspective.

It may come as a surprise, but even if you could give everyone a raise, it wouldn’t increase their motivation to work. Research is clear: Money isn’t the most effective way to increase employee engagement. Neither does it have a significant impact on our happiness. (Unless someone doesn’t have enough money to pay for their basic needs, I presume your employees don’t fall in this category. If they do, do what you can to pay them more.)

Work should be a source of stability, safety, and well-being in these unstable times

Work is a significant source of fulfillment and meaning. It gives us a feeling of stability and safety. And that’s what people need now more than ever. The rising prices and uncertainty about the future impact employee stress levels, their health, and, subsequently, their performance. So what should we do to help people get through these difficult times?

Inflation vs. motivation

The good news is that there are many things you can do to help your employees. Recently, the Behavioral Insights Team released a report reviewing evidence on the impact of monetary and non-monetary incentives on employee performance, retention, job satisfaction, and well-being. As it turns out, there is a lot you can do to redesign HR processes to help people live better lives and to be more satisfied with their work.

Monetary incentives

#1: Salaries

It’s not that money isn’t at all important. Obviously, no matter how much we love our jobs, we wouldn’t be doing them if we weren’t getting paid. Pay is an essential factor in employee motivation, but it’s not the most important one.

When it comes to money, it’s not just about how much we make. A more important aspect of monetary incentives is whether we perceive our salaries to be fair. Your employees will be more satisfied with their work if they feel their earnings are similar to that of their peers. The process used at your organization to decide salary levels needs to be transparent, and people need to perceive it as fair.

Tip #1: Make incentive processes at your company transparent and fair.

#2: Bonuses

While your organization may not have the resources to increase the pay of all employees, you may be able to offer bonuses (and most likely already do so). Like in the case of salaries, it matters not only how much money people receive in their bonuses but, most notably, how you hand out these bonuses. Research indicates that prosocial bonuses (e.g., donations towards charities) and group-based performance bonuses (e.g., sharing rewards with colleagues, social activities) have a more significant impact on employee well-being than individual performance-based bonuses.

Tip #2: If you can, redesign the bonus scheme to give prosocial and/or group-based performance bonuses. If you’re handing out a prosocial bonus, remember to provide a choice of how people can use the money, for example, by allowing them to select which charities they want to support.

Non-monetary incentives

#3: Company ownership

If you can’t give people more money, give them a part of the company. Employees who own company shares report being more engaged at work and more satisfied with salaries than people working in non-employee-owned businesses or people who were given financial incentives. Giving people partial company ownership also makes them feel more secure about their work and that they have more influence over what they do.

Tip #3: Instead of giving people a raise (or nothing), provide them with company shares.

#4: Flexible work

Flexible work has become a hot topic since COVID receded, as we started working from offices again. Many companies demanded their employees return to the office and work the typical “9 to 5” hours. Yet, let’s look at the research. Flexible working hours have a positive impact on job satisfaction, retention, employee well-being, as well as diversity and inclusion.

Why are flexible working hours so important? Research suggests that flexible working hours allow for a better work-life balance, reduced stress, and increased well-being. Many employees report that flexible working hours help them stay healthy by allowing them more time to exercise or make better lifestyle choices. People even say that flexible work reduces the time they take off work sick. (There's so much good about flexible work. You can read more about it here).

Tip #4: Allow employees to choose when and where they work.

#5: Recognition

If we were to select one most important factor influencing employee motivation, it might be recognition (not money!). Recognition is crucial for work satisfaction. It creates a sense of meaning and positively impacts employee engagement and retention. Employees cite lack of recognition and acknowledgment as a major factor in leaving an organization. One study among 1200 workers showed that 46% left a company because they felt unappreciated.

Recognition can mean giving an employee a promotion. Still, it can also be as simple as a sincere “thank you” from a supervisor or positive feedback from team members or clients.

Tip #5: Build moments of recognition into everyday work. Ask managers to carve out time during team meetings to:

Express their gratitude for the work employees are doing
Regularly give positive feedback.

Such verbal recognition will be most effective if it’s public (i.e., in front of others), authentic, and from people whose feedback matters to the recipient.

#6: Company culture

No one likes working for a company with a toxic culture. Research shows that company culture — its values, the quality of senior management, work-life balance, and career opportunities — positively impact employee retention.

Tip #6: Work on creating a great company culture. This includes, among other things, having good quality senior managers and allowing employees to have a work-life balance.

#7: Sustainability

If you employ Generation Z (people born between ~1997 and 2012), you can improve retention by reducing your company’s environmental impact. Surveys show that young people are highly interested in sustainability, with 28% saying that climate change and environmental protection are their top concerns. Research shows that Generation Z, who believe their employees strive to reduce the companies’ environmental impact, are more willing to stay with that employer for at least five years.

Tip #7: Encourage the decision-makers at your company to invest in sustainable practices and environmental protection.