Over and over in this column, we have talked about employee development, from selecting the right employees right out of the box to partnerships with technical schools to develop potential hires with the skills you need. We’ve provided advice about online learning and email protocols and evaluated easy access to software updates, dealer sponsored courses and workshops, and the use of simulators and on-the-job learning. But by and large, we’ve said little about compensation and its role in developing an effective workforce and in employee satisfaction. This hit me the other day when an article on the “psychology of inequality” caught my eye. I picked it up thinking I would be reading about the difference between the 1% or the top 10%, or whatever it is in this country, versus the rest of us toiling away at various levels closer to the bottom than the top.
Not much of a fit, you might say? Maybe, but there were insights.
A quick Google search brought up a range of articles on compensation and job satisfaction, many pointing out the obvious—yes, compensation has the potential to influence employee satisfaction. Yes, that’s true, as long as you keep in mind other factors such as the mechanics of the work environment. Yes, job satisfaction is related to increased productivity, improved morale, reduced absenteeism, and fewer on-the-job conflicts. Other entries were prescriptive about how to develop a compensation hierarchy; still others offered the kind of practical organizational advice that human resource specialists are known for—surveys etc. But before we wade in deep, let’s take a look at the article on inequality because it provides a context for thinking about the larger issue.
The article began with the results of research by a team of economists who were interested in testing how two common economic models would apply to a specific group of employees who had access to their coworkers’ salaries. (Just why the researchers were interested in this is not spelled out, which is too bad because it might have made the results more revelatory.) The rational-updating model assumes that people have a primarily intellectual response when they are made privy to how much their coworkers make and how their own compensation shapes up against it. The theory holds that such individuals would assess what they earn in terms of opportunity, such that people who discover that they’re being paid less than their coworkers revise their projection about their potential future earnings and conclude their prospects for a raise are good (nowhere to go but up). On the other hand, people who learn that they’re being paid more than their colleagues will be discouraged and update their expectations in the opposite direction—nowhere to go, period.
The relative income model holds that people respond to inequity in compensation on an emotional as opposed to intellectual level; that is, employees who discover they’re getting paid less than coworkers will conclude they’re underappreciated. Those at the lowest level will be “pissed,” as the author describes it, when they find they’re getting less than people around them doing the same job. Those at the highest end will feel gratified. (Sound familiar?)
The researchers sent emails to thousands of employees at the University of California at Los Angeles, Santa Cruz, and San Diego whose salaries were publicly available in a database of all state employees maintained by the Sacramento Bee, the newspaper of record in California’s state capital. Follow-up questions were sent asking the same group of individuals how satisfied they were with what they’re earning. An identical survey was sent to a second group of people who had not been alerted to the Sacramento Bee database and thus weren’t in the know about their coworkers’ salaries.
Respondents who had been informed about and had visited the newspaper’s database and discovered they were earning less than their peers were not only unhappy (as would have been predicted by the relative income model), but they reported that they were less satisfied with their job and more interested in finding new ones. But from there, the model broke down. Less predictably, but far more interesting, respondents who discovered that they made more than their colleagues didn’t express satisfaction or pleasure, as the researchers put it, but were fact indifferent to their good fortune.
Not surprisingly, the researchers concluded that access to the database had had a negative effect on people being paid below the median for their job, but also (and also unsurprising) given these results, employers have a strong incentive to keep employee salaries secret.
To flesh out this study’s finding that real or perceived inequality is troublesome and causes “distress” for the people at the bottom, but brings relatively little joy to those at the top, the article goes on to describe a study of 50 wealthy Manhattan families. “Wealthy” in this case means an annual family income of more than $500,000 (over half were earning more than $1 million a year or had assets of more than $8 million, or both). Based on interviews with the study subjects, the not-so-surprising conclusion was that affluence is relative. No matter what you have, there’s always someone who has more. Comparing themselves to the ultra rich, the super rich can feel justified in feeling sorry for themselves. The author’s takeaway seems to be that we humans are hardwired to be sensitive to inequity.
Back to Google: An article in the Harvard Business Review looked at a range of studies on employee compensation with an eye to gaining insight into whether money makes a job more enjoyable or, conversely, higher salaries actually demotivate employees.
In one study the author cited, researchers synthesized findings from 92 quantitative studies for combined data on over 15,000 individuals. The results indicated that the association between salary and job satisfaction is extremely weak. There was, in fact, a less than 2% overlap between pay and job satisfaction.
A similar pattern emerged when the research team selected specific groups: employees earning salaries in the top half of the data range reported similar levels of job satisfaction as those earning salaries in the bottom half. The author notes that this finding is consistent with Gallup’s engagement research, which reports no significant difference in employee engagement by pay level. (Source: www.bit.ly/2pi85Ty) (Gallup’s findings were based on 1.4 million employees from 192 organizations across 49 industries.)
On another level, according to a 2011 Gallup survey, 71% of American workers were “not engaged” or “actively disengaged” in their work, which the researchers interpreted as being “emotionally disconnected from their workplaces,” with the result that they are “less likely to be productive” and leaving only basically one-third of American workers involved in and enthusiastic about their work and contributing to their organizations in a positive manner. What to do? The researchers suggest that hiring top management talent can influence worker engagement, a recommendation that would seem to go without saying. (Source: www.bit.ly/2FHwnS1)
What does it mean to be “engaged” as an employee? A Forbes magazine contributor took a crack at sorting it out. Noting that engagement has replaced what we used to call morale and typically refers to an employee’s connection to an organization’s mission, she suggests that engagement is a concept that ultimately has little value. (Typically in this magazine, we’ve developed the idea that it’s important that employees identify with what their organization is trying to do and understand and feel proud of how what they do contributes to the overall effort.) On the contrary, the Forbes author holds that it’s much more important to be aware of employees’ personal missions, such as saving money to buy a house or gaining experience they can leverage.
Noting, however, that some people use engagement to mean when employees are happy and busy, she signals that she’s okay with that, concluding, “When folks can plug into their own power source at work, they can race forward unimpeded.” Given that she’s discussing the techie world where employees are happiest when they’re working solo with the latest gadgets on discrete projects that interest them personally, one might sense a contradiction with her idea that extrinsic rewards that play to an employee’s agenda work best. (In case you aren’t up to speed on the lingo, compensation, i.e., money and, to some degree, benefits are examples of what HR people refer to as extrinsic reward. In contrast to the Forbes author, the thought these days seems to be that extrinsic rewards run a significant risk of diminishing rather than supporting employees’ intrinsic motivation, which is related to their skills and the work itself.)
Operationally speaking, what does this all add up to? It would seem to suggest that if you want to motivate your workforce, you should understand where your employees are coming from. As one researcher put it, perhaps it is time to compensate people not only according to what they know or do but also for what they want. It also seems to go without saying that this opens up a whole other can of worms.
For example, a 2014 Society for Human Resource Management study reports that “after years of frozen wages or small pay increases,” 60% of US employees rated compensation “very important,” and 36% rated it “important,” making it the top contributor to overall employee job satisfaction. This is a jump up the ladder from compensation’s position at number three in 2012 when “job security” and “opportunities to use skills/abilities” were the leading drivers of satisfaction.
Three years later, things had changed again. For the second year in a row, 67% of employees at all levels rated respectful treatment as very important, making it the top contributor to overall employee job satisfaction. The researchers concluded the results support the theory that although employees do place importance on the financial features of a job such as pay and benefits, they consider culture and connection to be of “utmost importance.”
So what’s a company to do? You could go the HR route and do a survey to find out what employees want. The internet offers all kinds and levels of advice and there are plenty of online templates available. Gallup, for example, suggests the following 12 questions, which it assures us are based on “more than 30 years of in-depth behavioral economic research involving more than 17 million employees”:
- Do you know what is expected of you at work?
- Do you have the materials and equipment to do your work right?
- At work, do you have the opportunity to do what you do best every day?
- In the last seven days, have you received recognition or praise for doing good work?
- Does your supervisor, or someone at work, seem to care about you as a person?
- Is there someone who encourages your development?
- Do your opinions seem to count?
- Does the mission/purpose of your company make you feel your job is important?
- Are your associates (fellow employees) committed to doing quality work?
- Do you have a best friend at work?
- In the last six months, has someone at work talked to you about your progress?
- In the last year, have you had opportunities to learn and grow?
Aside from a formal survey, it would seem logical that employers should be seeking answers to a number of these questions on a regular basis. This would seem to include securing feedback from employees on whether they know what’s expected of them, if they feel they’re using their best skills in their job, whether this provides satisfaction, if they have what they need to do their best, and if they are getting the feedback they need. Whether an organization needs a formal survey on a regular basis might well be a function of its size and complexity. Fundamentally, it would seem that supervisors and management who interact directly with the workforce would want to secure this information. Queries about having friends at work and having one’s opinion count might call for a more organized approach, again depending on how a company is already set up to secure employee feedback and such variables as whether operations are humming along smoothly or the organization has recently encountered some bumps in the road.
Back to where we started: how important is compensation to job satisfaction and employee development? It would seem that pay is relative to other variables including the nature of the job, the circumstances of the job, social and political trends in the larger society, and employees’ personal goals. Inevitably, this relates to something we’ve been saying all along: it’s essential to treat employees and groups of employees as a resource, rather than cogs hitched to a wheel designed by someone far removed from their circumstances. It’s not so much that dollars be damned, but as someone once observed, money by itself doesn’t buy happiness.
