New Study by EBS Universität: Why Money Alone Doesn't Motivate Employees

Financial incentives are considered a proven way to boost employee performance in companies. However, more money does not necessarily lead to better results. A joint research study by Prof. Dr. Jenny Kragl of EBS Business School and Prof. Hideshi Itoh of Waseda University in Tokyo shows that the esteem in which employees are held by their colleagues, as well as the desire for social recognition, can also play a decisive role in determining the level of employee engagement.

In their working paper “Image Concerns in Organizations,” the researchers use a theoretical economic model to examine how financial incentives and the need for a positive perception within the team interact. The findings provide new insights into how companies can design incentive systems and promote collaboration within teams.

When Recognition Becomes More Important Than Money

A key finding of the research: Greater financial incentives do not automatically lead to higher motivation or better performance. The importance employees place on their standing within the team is also a decisive factor.

Those who want to be perceived by their colleagues as dedicated and hardworking do not base their behavior solely on financial benefits. Social recognition and reputation can thus be independent motivational factors that influence the effectiveness of traditional compensation models.

Research shows that companies should not rely solely on salary, bonuses, and individual performance bonuses when designing incentive systems.

Larger and More Diverse Teams Can Boost Motivation

In addition to financial and social incentives, Kragl and Itoh are examining how the size and composition of teams influence employee behavior.

Their theoretical findings suggest that larger teams and diverse perspectives can have positive effects on motivation under certain conditions. The integration of new team members can also help boost motivation within existing teams.

The research thus challenges the widespread assumption that larger or more heterogeneous teams inevitably lead to a loss of motivation or more difficult collaboration. Rather, what matters is how social incentives and organizational conditions interact.

International Research Collaboration Funded by the DFG

This research is part of the project “The Endogenous Role of Social Preferences for Institutions and Organizations,” which has been funded by the German Research Foundation (DFG) since January 2026 for 24 months with 32,680 euros (project number 577757161).

This collaboration receives additional support through the JSPS Invitational Research Fellowship for Research in Japan at Waseda University’s Graduate School of Business and Finance (Fellow ID S26018).

This funding facilitates an intensive academic exchange between Germany and Japan. 

In March and April 2026, Jenny Kragl conducted research as a visiting scholar at Waseda University. Hideshi Itoh will be a visiting scholar at EBS Universität from October 19 through November 8, 2026, to continue their joint research. Another research visit by Jenny Kragl to Japan is planned for March 2027. International collaboration helps to further develop our understanding of employee motivation and organizational behavior and opens up new perspectives for designing modern work organisations.