Half a century of research into the question of whether people are motivated by money provides a very clear conclusion - put simply, the answer is 'yes' and 'no'. Before the more rational amongst my readers decry my newfound propensity for fence sitting, allow me to clarify my position.
Money clearly has an impact when it comes to work. Being paid provides the incentive we need to invest time and energy into an organisation, while also funding things like food and shelter. But once someone is in a job, simply paying them more doesn't necessarily lead to higher levels of performance or greater satisfaction (see my previous blog). So our interest and concerns about pay vary depending on which point of time you're looking at and the nature of the relationship with the organisation.
Is the pay reasonable?
When we're considering whether to take up a new job, we're initially concerned with whether the pay on offer is 'reasonable' - that is, does the amount we are going to be paid meet our expectations of what the job is worth. We do this by looking at other job ads, speaking to others in the industry, and balancing this with our financial needs and commitments. What we're effectively looking at is commonly referred to as the 'external competitiveness' of pay. Literally how competitive is the level of pay on offer versus other employers. Now, I'm using the word 'pay' in a pretty broad sense here to include other conditions which may include other benefits provided. Once we finish the negotiation with the employer, our concern about how 'reasonable' our pay effectively takes a back seat to another concern.
Is the pay fair?
Once we start in a new job, we suddenly become far more interested in how our pay compares to others within the new organisation, and less focused on how it compares to other organisations. Our thinking shifts from how 'reasonable' our pay is to how 'fair' our pay is. That is, are people who are performing roles of similar complexity and responsibility being paid a similar amount to me, and is my individual contribution being recognised in some way. Therefore, when employees have an issue with their pay, it is most often about how their pay compares to others within their organisation - typically referred to as 'internal equity'.
What does this mean for my organisation?
Many organisations focus primarily on the external competitiveness of their pay. They assess what they can afford to pay people, and then try take a position in the broader market that allows them to attract the people they need. These organisations will therefore often participate in salary surveys or other ways of gaining an appreciation of how competitively they pay their people. While this helps people who are applying for roles with your organisation to cover off how 'reasonable' your pay is, it does less to address the shift in mindset to 'fairness' that happens once people start with the organisation. Once people are working for you they are typically less interested in how well you stack up against other organisations, and they're far more interested in how they are paid relative to 'Fred' who sits next to them. Employees will express these concerns in a range of ways - perhaps directly questionning how pay levels are determined, or perhaps by putting in less effort and starting to look around for another job. Either way, being able to address how 'fair' your pay is forms a critical part of your overall position on pay - as critical (if not more critical) than how you compare to other organisations. Ultimately as an organisation you want to remove 'pay' as a concern altogether so you can focus on the other elements that really motivate people (see my earlier blog).
Here are some ways you can help ensure your organisation's pay is 'reasonable' and 'fair':
- Reward strategy: Developing a reward strategy doesn't have to be a huge exercise. The reality is that your organisation already has a reward strategy, whether it's formal or not. A reward strategy provides a framework for reward, remuneration and benefits. It provides a shared understanding of what we reward and how we reward as an organisation. A reward strategy provides the broader context and philosophy from which new policies can be generated and existing policies tested. The key is to identify some core principles that articulate what you reward, and how you reward. These principles can then guide decision making around pay and communication to employees.
- Grading structure: Again, developing a grading structure doesn't need to be a costly and lengthy exercise. A grading structure (as the name suggests) provides a framework within which all jobs sit within specific grades. These grades recognise the varying knowledge/experience, planning/coordination and guidance/impact that characterise different levels in the organisation. Jobs can then be placed within these grades and salary ranges for each grade established based on external market data and your capacity to pay. An effective grading structure allows you to ensure internal equity (or 'fairness') is addressed in a systematic and consistent way.
- Differentiate based on performance: People often assume differentiating reward based on performance automatically means 'incentives' or 'bonuses'. However, in many organisations incentives and bonuses don't match the culture the organisation is trying to build. And other research (covered in this blog) suggests that many incentive schemes actually have negative impacts, leading to poorer performance and decreased motivation. Differentiated reward may however include other benefits like access to training, opportunities to be seconded into more senior roles, or internal career opportunities in other areas. It may even be as simple as recognition for your efforts from members of the senior leadership team.
- Communication: A reward strategy and grading structure provide a great opportunity to communicate to your people what is valued and how they can make a contribution.