Why Rewards Cause Problems #1: Pay is Not a Motivator
Studies by the late W. Edwards Deming and numerous behavioral scientists over the past 60 years have determined that "pay is not a motivator." Any of us who get paid for our work would challenge this argument. Certainly we all work for a pay check. If you remove the paycheck, we will stop working - at least I will (unless it is a cause I firmly want to support - in which case I am intrinsically motivated to work.)
The evidence from dozens of studies show that cutting of salary is a de-motivator, but there is no concrete evidence that increasing salary has anything but a transitory impact on motivation. Whatever we have, is great, but we always want more. It is part of the human condition to always be stretching. Even Donald Trump is not satisfied with his possessions. He needs more. In fact, for many people, the more they have the more they want.
If I give you a $10,000 bonus, you will be ecstatic for a while, maybe for several months, but soon you will ask "what have you done for me lately." The additional $10,000 may have helped you buy your new boat, but it did not make a lasting change in your motivation to do a good job at work. Nor does it help you pay for the docking fees or the gas to keep your boat afloat. In a behavioral study by the famous Frederick Herzberg, he concludes, "just because too little money can irritate and demotivate does not mean that more and more money will bring about increased satisfaction, much less increased motivation." (Herzberg, 1968)
The best advice is to be sure people are paid fairly and that they are not feeling abused by your pay policy, but do not try to motivate workers by giving out bonuses or small pay raises. Think of pay as the potential cause of dissatisfaction rather than a prime mechanism to achieve motivation. To increase motivation, change the culture and focus on the motivating factors, like autonomy, delegation, responsibility, accountability, clear goals, etc.