Jonathan Langton

Taking the Issue of Money off the Table

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There is a reasonable probability that the reader has seen this video (6.7 million views on YouTube at the time of writing).  It hints at the widely accepted theory that job satisfaction, and hence performance and motivation presumably, is not simply a continuum.  While it is good to know something of how to motivate employees, that good work may be undone by failing to do what is necessary to avoid employee disenchantment.  The presentation only touches on the role that pay has to play in that equilibrium, but more could be said.

Dan Pink gives an entertaining talk and the animation is well done, but the content is not particularly ground breaking.  The idea that adequate pay is necessary to avoid pay dissatisfaction, but that superior remuneration is insufficient to counteract other causes of employee dissatisfaction, was posited by Herzberg in his innovative 1959 book “The Motivation to Work”.  Herzberg states that, rather than the sum of all the aspects that may influence work place satisfaction placing the employee on a continuum between the extremes of full satisfaction and complete dissatisfaction, the situation is better explained using a two factor theory.  Herzberg describes these as “hygiene factors”, those which must be present to avoid dissatisfaction, and “motivators”, those which create a positive environment for the employee.

Sketch of Herzberg's proposed model.

Herzberg proposed a two factor model...

As Pink indicates, under most work conditions, those requiring an element of cognitive effort, pay tends to be more of a hygiene factor.  While at first glance this may appear counterintuitive, it does not take much thought to see the reasoning – sometime there just isn’t enough money to continue in a bad job.  At around the five minute mark, Pink makes the following observation:

“The best use of money as a motivator is to pay people enough to take the issue of money off the table.”

RSA Animate screenshot

Take the issue of money off the table...

Of course, Pink must simplify these complex issues in order to produce an easily digestible, ten minute presentation, however the above statement leaves a question hanging that is not addressed further.

How?

It seems to be portrayed as the easiest thing in the world to avoid this potential demotivating factor; simply pay “enough”.  What is not clear is what that means, precisely.  Moreover, paying any more will not result in greater motivation or performance, but obviously will negatively affect the efficiency of the business. Employers may be interested to know, in addition to how to motivate employees, how to avoid losing that motivation by not paying attention to hygiene factors, such as pay.  This could be of particular interest to managers, who are often limited in their authority to significantly impact the pay of their reports, not simply in the general terms of the workforce as a whole, but also on an individual employee level.

It would be naive to believe that the answer is simply to pay “market rates”, since that would imply that an employee in a given line of work of his choosing is satisfied with the pay that it commands, yet there are other elements, besides pay, that determine why an employee stays in a particular job.  The fact is that, outside the working environment, individual employees will vary considerably in terms of their financial obligations, their expectations for standard of living and their desired disposable income.  Moreover, the individuals’ demands have a tendency to expand; as one level of desire is satisfied, another emerges.

The question of pay satisfaction is considerably more complex and Pink can be excused for opting not to enter into it.  Research has shown that pay satisfaction may be affected by many different criteria, including the amount of pay received and how it compares to expectations, which are related to the perceived equity of the pay received, but also including employees’ perceptions of the adequacy of the administration of the pay system [1].

A modified model of the determinants of pay satisfaction.

A pay satisfaction equity model...

Perhaps employers and managers do not need to concern themselves excessively with pay satisfaction.  It is easy to blur the lines between satisfaction, motivation and performance, however, similar to Herzberg’s counterintuitive discovery, they may not be correlated.  Although widely held to be true, the commonsense wisdom that satisfaction goes hand-in-hand with good performance, lacks support in research literature [2].  However, the author of that observation does go on to explain that the norms of conducting research may be masking something that does in fact hold true.  Other researchers have attempted to define utility models of pay level policies that lead, lag or match the market, even going as far as to determine the financial impact, estimating employees’ and new applicants’ behaviour as a result of those policies [3].

However, professionals generally agree that hygiene factors are important and deserve attention.  Widely discussed in the literature is equity theory, that is, the relationship between satisfaction and the perceived fairness of the distribution of some resource, in this case pay.  In the case of equity perceptions, it can be shown that the individual’s choice of reference group, those with whom they compare their own situation, is highly important [4].

It does seem to be possible that an employee choose a reference group for comparison that is not representative of his own situation.  Rather than perceiving his peers to be those in similar roles and industries, his benchmark reference may be defined by others of similar social situation or background, age or years of work experience, intelligence or education.  This provides significant scope for dissatisfaction, none of which is realistically within the control of the employer.  Of course, that dissatisfaction is not limited just to pay, but is likely to relate also to esteem and responsibility.

How might the employee that has expectations and aspirations misaligned to the current role be expected to act?  Changing their frame of reference would necessarily seem to have a negative impact on their self-image.  Considering the diagram above, the pay equality theory parameter that is within the employee’s control is the balance of inputs and outputs (effort/performance versus pay).  The employee may lower their outputs, decrease their effort or performance, in order to redress the perceived inequity.  This is the inverse of the previous argument, true or not, that satisfaction drives greater performance.

The talented manager could certainly take Pink’s advice in order to foster greater motivation in the “misaligned” employee, however it would always be working counter to the demotivating effect of the company being unable to reasonably meet the employee’s pay expectations.  Said employee is unlikely to ever meet their maximum potential motivation or performance.  It would then seem that an employer or manager is well advised to avoid taking on employees who may have expectations, particularly on pay, that are not easily met for the role under consideration.  As unpalatable as the suggestion may be, this would seem to suggest screening out job applicants for whom that may be the reality, for instance young candidates with large families, applicants with lifestyles somewhat more affluent than the norm for similar workers, MBA graduates with large student loans and anyone who has a large number of acquaintances in banking.  This would be very difficult, if not impossible, to justify and is clearly not common practice when companies choose to employ the best possible applicant, rather than the most suitable.

Pink is focussed on motivators and presents pay is one of the easiest hygiene factors to solve.  After all, it’s only money isn’t it?  Perhaps not, if the battle is being fought in the mind of the employee and like is not being compared for like.

Many thanks to my professor, Juan I. Sanchez, for his advice on researching this article. 

References

[1] Dyer, L. and Theriault, R., (1976). Determinants of Pay Satisfaction. Journal of Applied Psychology, 61(5), 596-604

[2] Fischer, C. D., (2003). Why Do Lay People Believe That Satisfaction and Performance are Correlated? Possible Sources of a Commonsense Theory. Journal of Organizational Behavior, 24, 753–777

[3] Klaas, B. S. and McClendon, J. A.,(1996). To Lead, Lag or Match:  Estimating the Financial Impact of Pay Level Policies. Personnel Psychology, 49(1), 121–14

[4] Bonache, J., Sanchez, J. I. and Zárraga-Oberty, C., (2009). The interaction of expatriate pay differential and expatriate inputs on host country nationals’ pay unfairness. International Journal of Human Resource Management, 20(10), 2135-2149.

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