In most societies pay level is regarded as an important indicator for status, success and also happiness. Taking a look at the great amount of TV shows dealing with the “rich and famous”, it becomes clear that wealth is a crucial goal for most people.
Salary Motivation Theory
There is lots of research about the significance of pay with regard to performance, motivation and satisfaction. Some state that pay increases the employee performance (e.g. Gardner et al, 2004), others found that pay is harming for innovation and intrinsic motivation (Pfeffer, 1998). Taking a look at most industries, however, pay for performance schemes and the general set up of payment plans seem to support the assumption that money motivates people. Lots of time and money have been spent on finding the right scheme that will make employees perform better, engage more and be more satisfied. But what is it really about?
Pay and Job Satisfaction
Judge and colleagues (2010) conducted a meta analysis, considering the largest amount of the research on pay and its correlation with job satisfaction. What they found is that pay level is only slightly related to job satisfaction (.15) and a higher pay level does not necessarily lead to greater job satisfaction. In addition, Williams, Mc Daniel and Nguyen (2006) found that pay level satisfaction only has a little effect on performance, questioning the relevance and effectiveness of pay for performance schemes in general. Pay for performance’s effect on motivation of employees was researched by Marsden and Richardson (1994) and was found to be rather demotivating than motivating. So why do companies bother with pay schemes if it does not sufficiently increase employees’ satisfaction, motivation or performance?
What most researchers agree upon is that the effect of salary on motivation, satisfaction and performance mostly depends on the individual. The perception about high and low pay level, as well as the individual value of money is arbitrary. What was discovered by Judge and his colleagues (2010) was that bankers earning about 150.00 USD a year were not more satisfied than child care takers earning 20.000 USD a year. Similar examples can be found all over scientific research on salary.
Alternatives to Salary Raise to Motivate and Increase Production
When it comes to salary and pay for performance schemes companies need to consider careful what it is they want to reward and in how far there might be different ways to motivate and engage employees. Most employees prefer a job in a fun environment, which is intellectually engaging and family-friendly (Pfeffer, 1998). So instead of rising pay levels one should consider whether to invest in flexible working hours, create pet projects or general fun-projects. The fresh fruit at the desk, the new coffee machine or new screens are cheaper than rewarding all employees with money and still give them a feeling of appreciation. As mentioned before, however, this is down to the individual. A great number of people are motivated by money (even though a rise in salary mostly only has a short term effect (Judge et al, 2010)), and the feeling of being underpaid is even demotivating. Yet, money is not all and definitely not the best and easiest way to make employees happy, motivated and satisfied.