Why a pay raise may not be the answer to staff engagement

There are many out there who say workers with a fatter pay cheque feel more valued and work harder, but a study has found cash might not be as inspiring as most would have thought.

According to research from PayScale,  firms that claimed they surpassed their revenue expectations in 2015 – and said they were a top player in their industries – tend to be more generous in their compensation habits.

The survey included nearly 7,600 companies in the United States, Canada, India, the UK and other largely English-speaking nations.

In 2015, 90% of top performing firms, which constitute about 30% of respondents, gave pay raises. Only 84% of the remaining respondents – identified as average companies – gave pay raises. Additionally, 81% of the top performing companies said they gave bonuses, compared to 74% of average companies.

The more successful companies were also 5% more likely to offer team bonuses to recognise groups of individuals who contribute to the business in a significant way.

But the survey also found that salary hikes and bonuses given by employers, however well-intentioned, may not be making their intended impact on workers.

According to the survey, 73% of employers felt their employees were being paid fairly but only 36% of employees agreed with that.

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Tim Low, VP of marketing at PayScale, thinks salary is only part of the story.

"What we see is an embracing by some of those companies that were tagged as high performers of some of the practices that actually don’t cost money."

Those differences are illustrated by survey results showing 86% of top performers claim that their people are their greatest asset, only 78% of average companies agreed with that statement.

Also, 47% of top performers embraced compensation transparency while only 39% of average companies did.

Low wrote in the Harvard Business Review that many organisations today are aware of the increasing drumbeat and media discourse around pay fairness, but it’s clear that some of the more traditional ways  of paying people are no longer motivating and engaging employees.

At one end of the spectrum is the tired, uninspired but common cost of living adjustment that many organisations dole out across the board. Low sees these pay raises for everybody as telling high performers their efforts weren’t recognised and telling their low performers it’s OK to continue delivering mediocre results.

At the other end of the spectrum are companies like Gravity Payments, whose CEO Dan Price famously cut his own pay to set the base pay for each employee at $70,000. In doing so some employees left because they were upset that less skilled employees got the largest boost in wages.

The common problem with each of these compensation strategies approaches is they don’t recognise individual contribution to the business.

Low suggested eliminating overly-broad pay policies, as company-wide compensation adjustments or payments don’t work to increase retention in the long run.

Employers need to communicate with managers to determine who is really driving business outcomes at the company. After identifying the people with different levels of contribution, employers can come up with a pay differential that ensures employees feel their contribution is valued.

Low believes there is real value by rewarding results and achievement, then communicate it back to employees, to create an environment where employees feel better about the deal they get.

Image: Shutterstock