It can’t buy you love, it’s the root of all evil, it makes the world go round and, for many right now, it’s too tight to mention, but does money really matter? It seems an odd question to be asking as the collapse in the global credit market shows us exactly how important liquidity is. But while we assume that financial incentives will make people work better and harder, that may not be entirely true.

For a start, there’s a long tradition of academic study that demonstrates the ways in which money motivates people – and perhaps more importantly, how the lack of it demotivates them. And while not many IT workers would admit it up front, studies show that it’s the emotional ties rather than their financial rewards that bind workers to an organisation to produce quality work, acceptance of working long hours and adherence to an employer.

Then there are other factors that are becoming increasingly important in making workers feel valued and loyal – sabbaticals, flexible benefits, the freedom to pursue other projects and interests and the offer of flexible working. And what about the old chestnut of job satisfaction? As psychologist Frederick Herzberg notes: “If you want people to feel motivated to do a good job, give them a good job to do.”

That money is not the be all and end all will come as some comfort to managers concerned about footing the rising bill for staffing costs in IT. Salary survey specialist Celre reported that in the year to May 2008, wages had risen at a higher rate than at any point in the past three years. The survey of 572 workplaces and nearly 67,000 IT staff found basic salaries up 4.8 per cent and bonuses up 5.7 per cent. For senior managers, bonuses are running at a hefty 15.3 per cent of salary. John Whiting, managing director of the UK IT business at recruitment firm Harvey Nash, puts the figure even higher at a senior level, with bonuses linked to performance.

“Over the last few years we’ve seen a change in the make-up of the overall remuneration package to include more of a bonus element. Four or five years ago, it was 10 to 12 per cent, now it’s more like 25 to 30 per cent,” he says.

But with budgets under scrutiny, the types of perks we’ve been seeing, particularly in financial IT, cannot continue. The bonus element of a package might remain, but companies are also starting to expect more for less and unpaid overtime is at an all-time high, according to IT recruitment site While many of the 500 IT workers it asked admitted to being ignorant of the EU’s Working Time Directive, one in 10 is working more than their statutory 48 hours for nothing.

The desire for money as an end in itself is a somewhat cyclical pursuit in the world of work. Think back to the Yuppie-fied 1980s and consider how such naked pursuit of wealth would be viewed today. Current rows surrounding the overstretching of banks leading into the credit crunch even led two Anglican bishops to condemn City workers as morally reprehensible.

Rather than greed alone, it is the desire for acceptance is one of the comfort factors that we look for in our working lives, alongside autonomy and belonging, say psychologists. You want to feel that you are competent and doing a good job and will therefore be rewarded at the market rate in recognition of that, and if that rate is spiralling out of control then you become part of the spiral. And while the received wisdom is that money is an effective incentive to make people work harder and deliver better results, some psychologists argue this is not the case.

The two-factor theory of psychologist Herzberg, first proposed way back in the 1960s, suggests that job satisfaction and job dissatisfaction stem from different sets of factors. Pay is a factor that prevents dissatisfaction, along with others such as job security, physical working conditions and company policies, while the motivators that promote satisfaction are more to do with personal growth, recognition, respons-ibility and opportunities for promotion and achievement.

Speaking on the psychology of remuneration at the recent Institute of Payroll Professionals conference in Brighton, Adrian Furnham, professor of psychology at University College London, said the problem with money was that “you need a lot of it to make a difference”. Money has only a temporary effect, he pointed out, as we quickly start making comparisons with equally rewarded peers or realise that other elements such as security or the work/life balance are more important.

This theory seems to be borne out by the experience of recruiters. “Money is a short-term motivator,” says Whiting at Harvey Nash, “but it’s a long-term demotivator if it’s not market competitive. People may at certain times move jobs for more money, but you very quickly learn to live within your means, so over time its emotional benefit is lessened.” Whiting cites the push and pull factors that contribute to a move, saying: “Overall, the push factors are more about what’s sexy, interesting and challenging in a role. The top people want to go somewhere they can be seen to make a difference.”

Whiting cites the expansion of the CIO role, with high-profile CIOs taking on different responsibilities within the business. Tania Howarth, CIO of Birds Eye Iglo Group, for instance, was previously CIO and also headed up significant organisational change at Coca-Cola Europe and Africa. Similarly, David Burden, former CIO of Royal Mail Group, was also an executive director and led several procurement initiatives at the same organisation.

David Atkins, head of the senior appointments team at Hays IT recruitment, agrees. “I’ve certainly seen people make financial sacrifices for long-term gain, such as to get into a different sector or because they are really unhappy where they are,” he says.

“I had one candidate who secured a role, then had a ludicrously large counter-offer from their current employer. They were almost blinded by the money but they took the view that it’s not just about the money. If you get the right role, in a good company where you can make an impact, then the money will follow.” Besides, he adds: “If it’s all about money, then you are not approaching it with the right mentality. And at the highest level, the talented people will always attract good money.”

Of course, this is not to say money is not important and Hays IT’s own annual IT survey this year highlights that. Hays asked about challenges in recruiting IT middle and senior management and the top two responses (on 47 per cent and 46 per cent respectively) were finding strong business awareness and leadership skills. Right behind these on 45 per cent, however, was excessive salary demands. And when it comes to agreeing the actual offer, far and away the biggest stumbling block (with 61 per cent) was salary demands.

For this reason, Atkins recommends agreeing the salary demands up front, then leaving them out of the equation. “That’s best handled by the recruiter. Then the candidate can focus on selling themselves for the job and there’s no awkwardness between the two parties,” he says. Equally, any other stumbling blocks, such as a long notice period, should be flagged at the start of the process.

So if money is not the big motivator that many think it to be, what is it that inspires us to work hard and deliver better quality in our organisations? In his 2004 book The Employment Relationship: Examining Psychological and Cultural Perspectives, organisational psychologist Professor Bob Eisenberger from the University of Delaware argues for a concept called “perceived organisational support”, or POS. “POS fosters effective organisational commitment by meeting employees’ socio-emotional needs, such as the needs for esteem, approval, and emotional support,” he wrote.

Some of the factors that lead to POS are job security, autonomy, training, participation in decision making and opportunities for reward and promotion. Eisenberger points to research studies demonstrating seven times higher POS when these job conditions are seen as discretionary rather than mandatory. If, for example, your boss gives you a three per cent rise in line with inflation, it has much less impact than a bonus tied to a particular project or organisational achievement. Similarly, the impact of non-discretionary penalties is lower if the company has no choice in the matter, such as imposing pay cuts in unfavourable economic conditions.

Flexibility around working times and conditions is one thing that the most senior managers take for granted, but flexible working is definitely a prime motivator of kind feelings towards an organisation. And again, employees view this as more of a benefit when it goes beyond the statutory flexible working consideration that all employers have to give. Flexible benefits, where employees pick and choose the elements of a package that best suit them, can also prove a motivator, although schemes can take some effort to set up. UCL’s Furnham gives the example of one banker who valued unpaid leave, explaining to him that “the best thing about working here is you can buy your holidays”.

Climate of fear

While few companies are shutting down key projects in the face of the difficult economic conditions, many are putting budgets under closer scrutiny and placing greater demands on existing employees. The impact on the workforce overall is pronounced – and it’s rooted in fear.
James Parker, a manager at the IT division of recruitment firm Robert Walters, says that staff are sitting tight. “In some cases, a candidate’s motivation for leaving a few months ago – because of job dissatisfaction or other soft factors such as wanting to gain new skills – has disappeared now, so it’s getting harder to tempt people to leave.”
Harvey Nash’s annual CIO survey for 2007-08 predicted that over the subsequent 12 months, more than half of the country’s top IT management would have switched jobs. But that survey was conducted this time last year – is it still the case? “A lot’s changed in the past 12 months,” says managing director John Whiting. “People are less eager to make a move.” He adds that job security has moved higher up the agenda, from a fifth or sixth priority to first or second.
The impact on salaries is also pronounced. While it’s taking more to prise an employee from their existing role, and organisations are doing more to hang on to their best individuals, Parker says there is an expectation on the part of employers that they can get more for less, while candidates believe they can command a bigger salary. “What would have been a small difference in expectations in any other market, say of five per cent, is magnified when the candidate is expecting an increase in salary and the client is expecting a decrease,” he says. “What we recommend is to be as specific as possible early on. Don’t aim high and expect to meet somewhere in the middle.”
Bonuses too are being examined with more caution. “People are getting sharper about equity and options, particularly if it’s a stressed company,” says Parker.
But the belief in a market awash with skills is largely untrue, say the recruiters, particularly at the top level, and they all note the continuing trend towards focusing on business-facing skills. “Even very experienced people have the mentality that it should be easier to find people,” says Whiting. “But all that happens in a market like this is that the weaker people come onto the marketplace. The top talent will not think about making a move.”

Similarly, other factors such as the opportunity to work on side-projects will be major contributors to feelings of loyalty. These, however, have seen low take-up outside academic institutions and visionary employers such as Google. A survey by the Society of Human Resource Management found just five per cent of companies had sabbatical schemes in place, although a further 18 per cent offered unpaid sabbaticals. It’s certainly worth considering: one of the reasons flexibility is valued so highly is that it allows employees to set their own working conditions.

As Herzberg’s two-factor theory suggests, one of the most influential strategies in motivating employees is to take away the negatives, such as an overbearing supervisor or unpleasant working conditions. Furnham has developed a matrix for how effective different compensation plans are for individuals, groups and the organisation itself, and in every case, minimising negative side-effects is rated very highly. So if your developer with the really bad body odour is a problem, perhaps instead of paying your other developers more to stay, it’s time to let him go.