According to the study, the £36.9 billion spent on performance bonuses in the UK last year had no impact on the motivation and commitment levels for the "vast majority" of UK workers, the study said.
The study of more than 1,000 UK employees found people's enjoyment of their role was the most effective motivator (59%).
Only 13% said they were motivated by the prospect of a bonus, although a good basic salary was deemed important, with 49% saying they were motivated by how much they were paid.
ILM chief executive Charles Elvin said understanding employees and what makes them tick is vital in having a "happy and motivated workforce".
"In the past year UK companies have collectively spent an astronomical amount on financial incentives for their staff. But this report is telling us there are far more effectives and cost-effective ways to motivate people," he said.
"These include regular feedback, allowing people to have autonomy in a role, the opportunity to innovate and improved office environments."
Employees also rated other emotional factors such as getting on with colleagues (42%), how well they are treated by their managers (22%) and how much control they have over their work (22%) highly.
Elvin added: "It sounds so simple, but something as basic as hearing great work on that report can be a real boost to an employees' confidence and deliver a sense of pride and satisfaction."
