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Employee Pay and Why It Isn’t the Sole Motivator in Business

Whenever business owners think about motivating their employees and how to improve the status quo, their thoughts often turn to employee pay. A default assumption tends to be that if we simply pay our employees a higher wage, they will perform better. But is this assumption really sound?

Unfortunately, more than a century of business and management research suggests that it’s not. For example, The Journal of Vocational Behavior notes that, in one of the grandest meta-analyses ever conducted on this topic, a group of researchers reviewed nearly a hundred different studies into the relationships between pay and job satisfaction, going back as far as the 1800s. What they found is that the general correlation between these two variables is fairly weak.

It’s not to say that there isn’t any relationship at all between employee pay and employee motivation – there certainly can be. For example, some studies have indicated that money, when it is positioned as an objective that can be reached in the near future, can help to shape employee behavior, according to Entrepreneur. But once the goal of improved performance is met, the power of money to motivate that performance fades quickly.

Related link: Skills Working Professionals Can Use to Start Their Own Business

Employee Pay Isn’t a Predictor of Job Satisfaction and Job Performance

So prevailing scientific wisdom seems to indicate that employee pay is not necessarily a good predictor of job satisfaction and job performance the way we might assume it ought to be. And if we stop to think about the dynamics involved for a moment, this way of thinking actually makes more sense than our intuitions might otherwise suggest.

Imagine, for example, that you have a job you hate with an employer who doesn’t respect you. Your morale could not be lower, and you loathe going to work. You feel no sense of loyalty to your employer and no impetus to perform at your best while you’re on the job. Many of us have had this type of job at some point in our lives.

Now imagine that your employer suddenly raises your pay with no other commensurate changes to your job or work environment. Should we expect that your pay bump alone will have a profound effect on your attitude toward your work? Probably not, unless the only reason you hated the job in the first place was your employee pay.

There Are Many Reasons for Job Dissatisfaction Other Than Employee Compensation

But often, the reasons for hard feelings toward a job are far more complex. Sure, employee pay can be one of them, according to CNBC.

However, there are many other potential causes of job dissatisfaction. Staff Squared notes that other causes of job dissatisfaction include relationships with bosses and/or coworkers, the kinds of work assigned to employees, an undesirable commute, a lack of upward mobility and other circumstances.

employee pay Deel 2
There are many reasons for job dissatisfaction other than employee pay.

So how can employees be properly motivated, apart from employee pay? The first step is for leaders to embrace a leadership philosophy conducive to earning buy-in from subordinates, a subject I discussed in a previous article on leadership theories.

Essentially, history has taught us that transformational leaders – those who seek to accomplish goals through the adoption of and shared support for a goal central to the group’s purpose – tend to be far more effective than transactional leaders. Transactional leaders are those bosses who simply try to manipulate employee behavior with carrot-and-stick incentives that are tangents to a group’s actual goal.

But that doesn’t imply that employee pay can’t play a role, either. Just because compensation is a “carrot” doesn’t mean that carrots never work. There are some tactics that leaders can use to drive employee behavior through compensation structure and design.

One approach is to ensure that the base pay offered to employees is fair. And there are several ways to define “fair.” A first way is to look at employee pay within the employer’s industry and ensure that salaries are reasonably similar to what competitors are offering. An employer should not expect to keep good talent if the competition is offering significantly higher wages for the same work.

A second way to approach fairness in employee pay is to ensure that pay rates are appropriate for the geographic region where an employee resides. Obviously, the costs of living vary wildly across the United States, with the most expensive cities costing much more to live in than the cheapest ones.

So one-size-fits-all employee pay schemes are not appropriate for businesses that have operations in multiple regions. There must be considerations for costs of living.

A third way to approach fairness in employee pay is to consider current economic dynamics and adjust them over time. Macro-economic variables can significantly affect how far an employee’s pay can go.

According to The Balance, inflation caused by war, the fallout of the COVID-19 pandemic, a supply chain crisis and other variables spiked to more than 8% in the United States in 2022 – a level not seen in nearly 40 years. As a result, costs of living for Americans changed drastically as the buying power of money diminished. So pay strategies need to consider how the value of employee pay can fluctuate over time.

Compensation packages should also include incentive rewards for employees to motivate performance above and beyond the bare minimum. When pay structures are limited to a base salary, employees often see little incentive to do more than show up and “punch the clock.” But when employee pay includes an incentive, such as a commission or bonus tied to meeting certain key performance indicators (KPIs) or benchmarks, employees may be inspired to work harder toward employer goals.

Finally, employee benefits can be just as important as direct pay – and sometimes even more so. For example, most compensation ultimately boils down to time, so focusing on employee benefits such as paid time off, sick time, family and medical leave time, retirement programs, and other perks can go a long way toward motivating workers to perform at their best.

Ultimately, the relationship between employee pay and employee motivation is complicated and tenuous at best. However, there are some practical ways in which compensation can be leveraged and strategized such that they maximize the extent to which employees do their best work, enjoy their jobs, and stay with a company for the long haul.

Gary Deel

Dr. Gary Deel is a faculty member with the Dr. Wallace E. Boston School of Business. He holds an M.S. in Space Studies, an M.A. in Psychology, an M.Ed. in Higher Education Leadership, an M.A. in Criminal Justice, a J.D. in Law, and a Ph.D. in Hospitality/Business Management. Gary teaches classes in various subjects for the University, the University of Central Florida, the University of Florida, Colorado State University, and others.

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