Beyond the Paycheque: How wise reward policies fuel motivation

If you ask employees how they feel about their pay, you’ll rarely hear: “It’s perfect.”  

And that’s not surprising. In organisations across Europe, most people believe they’re underpaid, even when their salary is above the market rate. And while pay rises can create a short-lived sense of progress, the satisfaction often fades fast. So the real question is: can pay actually motivate people, and if so, how? 

According to our HR & Payroll Pulse Europe 2025 report, around two-thirds of employers believe they offer fair compensation. Yet employees see things differently. Only 42% feel their salary is fair compared to others in similar roles, and just one in three believe pay practices in their organisation are transparent.  

This gap in perception highlights a growing tension. Employees are not just questioning what they earn, but how those decisions are made. What’s being rewarded? What isn’t? And do any of these decisions feel fair? 

The answers often lie not in the numbers, but in the structure, transparency and intent behind your reward strategy. 

Pay is undeniably important. It’s the baseline for financial security and a key factor in job decisions. But it doesn’t automatically lead to engagement. In fact, when financial rewards are overused or misapplied, they can sometimes reduce motivation instead of increasing it. 

That’s because pay interacts with intrinsic and extrinsic motivation in complex ways. If people feel fairly compensated, they’re free to focus on the purpose and enjoyment of their work. But if they feel underpaid, undervalued or unsure about how pay is determined, their attention shifts. Doubt creeps in. Distrust grows. 

One useful framework for understanding this is Herzberg’s Two-Factor Theory. It suggests that certain factors cause job satisfaction (motivators), while others prevent dissatisfaction (hygiene factors). Pay falls into the second category: a hygiene factor. That means poor pay can cause disengagement, but improving pay on its own won’t necessarily create motivation. 

However, that doesn’t mean pay is powerless. When thoughtfully designed, a reward strategy can reinforce what your organisation values, build trust and support a culture where people feel motivated to contribute. 

 

So, can pay drive performance? Yes, but it depends how it’s used. 

People are motivated when they feel fairly treated, clearly guided and emotionally connected to their work. If pay can reinforce those conditions, it becomes more than a transaction. It becomes a signal of trust and respect. 

That doesn’t mean offering more and more money, necessarily. It means aligning reward with purpose and making sure people understand how decisions are made. 

Let’s explore what makes pay motivating, and what undermines its impact: 

• Fairness and equity 
  People compare. Not just with the external market, but with their colleagues. They notice what others are earning, what is being rewarded and whether it feels aligned with effort, contribution or value. When those comparisons feel unfair, motivation suffers.
• Clear goals and performance links 
  Performance-related rewards only work if the goals are clear, relevant and achievable. Employees need to understand what success looks like, how it will be measured, and which parts are within their control.
• Autonomy and choice 
  Offering flexibility in how rewards are received can make them feel more meaningful. When people can choose between options such as cash, benefits, extra time off or development opportunities, they are more likely to feel that the reward reflects their individual priorities. Even small choices can enhance a sense of autonomy and respect.
• Recognition and emotional connection 
  Financial rewards become more powerful when paired with meaningful appreciation. A bonus feels different when it is accompanied by a thank you, a message of recognition or a moment of visibility. These emotional signals can make the experience more memorable and affirming.
• Progression and future orientation 
  People are not only motivated by what they earn today. They want to see that their future efforts will lead to growth. When pay is linked to a clear path of development and progression, employees are more likely to stay engaged and committed.
• The surprise effect 
  Unexpected rewards can create a powerful emotional response. Whether it is a small bonus, a symbolic gift or a public thank you, the element of surprise can boost feelings of gratitude and belonging. When used thoughtfully, surprise can help reinforce desired behaviours without turning everything into a transaction. 

A motivational reward strategy isn’t about spending more. It’s about designing with purpose. The most effective reward policies share a few key features: 

Clarity – Employees know what behaviours and results are being rewarded, and why. 
Transparency – The process behind pay decisions is explainable and fair. 
Flexibility – Different people value different things. Offer a degree of choice. 
Line of sight – There is a clear connection between individual performance and reward. 
Recognition mix – Financial rewards are paired with non-financial signals of appreciation and growth. 

Together, these factors turn pay into a meaningful driver of motivation, rather than just a cost. 

Even well-meaning policies can miss the mark. Common pitfalls include: 

• Paying for the wrong things 
  Rewarding presence over impact. Valuing individual heroics over collaboration. Incentivising quantity over quality. If the reward structure isn’t aligned with your values, it can send the wrong signals.
• One-size-fits-all thinking 
  Motivation isn’t universal. What excites one employee might leave another cold. Offering flexibility, or at least acknowledging different drivers, helps make rewards more relevant.
• Using pay to mask deeper issues 
  If employees are disengaged because of poor leadership or lack of vision, no amount of money will fix that. Pay can't compensate for cultural problems. In fact, it can make them worse. 

 

One of the most overlooked parts of any reward strategy is communication. People experience pay through conversations, not spreadsheets. 

That makes managers central to the success of your approach. A skilled manager can explain reward decisions with empathy, clarity and confidence. They help employees understand what was decided, why it matters and how they can grow. 

An unprepared manager, on the other hand, can create confusion or mistrust, even when the underlying policy is sound. That’s why investing in manager training isn’t a ‘nice-to-have’. In fact, it’s essential to making your reward strategy real. 

Pay on its own won’t transform a disengaged workforce. But when reward is fair, transparent and aligned with your values, it becomes a powerful asset. It reinforces trust, it motivates performance, and it helps create a culture where people know they matter. 

In the end, it’s not just how much you pay. It’s how well your reward strategy communicates what you stand for.