PHB is one of those bosses who reads a magazine article or goes to a seminar and comes back with all kinds of stupid ways to motivate employees. Regular raises are good, so one doesn't have to cut back on things like car insurance every year, affordable benefits, and my big three: respect, fairness, trust.
The reality is that money is never a source of satisfaction (or motivation) at work, it is only a source of dissatisfaction. That 'good feeling' we get after receiving a raise is ephemeral. It only lasts a few pay cycles and then its gone. However if we feel like we're underpaid then the dissatisfaction is unrelenting.