The old school of thought "Money is a good motivator' has been overthrown by contemporary research that proves that money is no longer an effective motivator, and beyond a given circumstance, it ceases to be one. This reasoning is very subjective given the various levels of need an individual currently is in. For example, an individual at the first level of needs (Maslow's hierarchy) would crave for money, and it would act as a very strong and effective motivator. The point here being emphasized that "A satisfied need is an ineffective motivator. Not only that a satisfied need doesn't motivate anymore, but also that it is subjective to an individual's mental and psychological framework that determines his perceived value towards different motivators.
The traditional school of thought established where rewards are associated with monetary forms and nothing else. This, over the time has caused in the abatement of perceived value of money, causing individuals to desire less of it. Another reason why money is not a good motivator is because in pursuit of such rewards, the behavior of individuals gets out of norms and wrong behavior gets rewarded which later proves cost to the company. Also, each one recognizes that 'all the highest paid ones are not the best performers'. Moreover, monetary rewards are also a great expense to the organization and increasing costs is anyways, a reversal to existing trends and hence cannot be tolerated.
In the light of Maslow's theory which defines the hierarchy of needs; it needs to be understood that levels of needs are clearly identified. Also, the essence of the theory is that a satisfied need cannot be a good motivator. If an individual looks forward to upper mobility in the social status and has climbed up one step, the desire to be there at that point diminishes and his expectations rise to another elevated level. Similarly, once an individual's need to earn enough or satisfactorily is achieved, money no longer motivates. However, human beings have more to care for besides earnings like being a part of a relation, institution; to be recognized, to achieve something.
In the light of Hertzberg's two factor theory which demarcates between hygiene factors motivators, it needs to be understood again that there are some factors which are imperative for functioning. And others, which are not but desired, can be good motivators. For example, if an individual is employed anywhere, the basic requirement would be a basic pay, without which a person wouldn't want to work at all. Here, the basic pay becomes a hygiene factor, which is an imperative. If the employer decided to provide something more than basic pay like dating allowance, earned leaves which are not something that is minimum, but might act as a motivator to the employee in performing better, these factors become the motivators. The assumption is that the perceived value of these elements in the mind of employee is high and his desire
to achieve them also high.
Hence, it can be concluded that Money, as a motivator, both when regarded as a level of need or a hygiene factor ceases to motivate someone beyond a given point, and the sense of achievement in the individual diversifies towards attainment of other factors than money.
(This was from my days of IIPM while pursuing MBA, 2001)