Think Pay Doesn’t Matter? Think Again!

Pay has often been viewed by organisations as a hygiene factor, but from the employee’s view, it holds a sense of value, worth, and reward. So why does pay really matter, now more than ever?

Think Pay Doesn’t Matter? Think Again!

30 Nov 2017 by  Ken Oehler

We have all heard that pay is a hygiene factor—meaning, you have to get pay right but you don’t get discretionary effort for incremental pay. Dan Pink says intrinsic motivation is what really what drives motivation and performance. There is, of course, some truth to these concepts, but the resulting conventional wisdom that “there is NO relationship between pay and engagement” is a binary and overly simplistic interpretation.

Purpose, autonomy, and mastery are great if you can find it, but what if you are an average worker who just found out you make less than your peers? Or what if, after a long dedicated career, you find many opportunities have been made null and void? Pay as a sense of value, worth, and reward is entangled in all of these relevant worker concerns—and this is not just hygiene. The notion that pay doesn’t matter to one’s motivation, engagement and performance is really pretty ridiculous and really dangerous. 

Why does pay really matter—especially now?

Companies need to grow. And leaders need engaged employees who will intensely apply their talent, energy, and motivation in areas that will spur growth. But, only one-quarter of employees are highly engaged—and many things are in the way. In Aon’s 2017 Trends in Global Employee Engagement study, we found that contrary to conventional wisdom, rewards & recognition is the #1 engagement opportunity when we triangulate on predictive power for engagement, employee perception, and average distance from top quartile performing companies. After running hundreds of engagement focus groups and many conjoint trade-off surveys, pay invariably comes up as being really important to engagement. We analysed blog comments from using our machine learning text analytics tool called Vox for 20 Fortune 50 organisations—and “Pay” is by far the loudest topic, with people mentioning both positive and negative impacts on motivation.

“They pay your benefits and you can get incentives for good performance.”
“Pay is good for top performers w Bonus structure.”
“Pay is low for the work that you are expected to do.”
“Lower on the pay scale compared to its competitors.”

The other things we see in the comment analysis is that pay is inextricably connected to other important engagement drivers like employee value proposition, performance management, career advancement, sense of worth and fulfilment, managerial recognition, and perceptions of leaders and the company itself.

Fairness is the key ingredient with regard to pay in our rapidly evolving and volatile geopolitical and business environment.

Digging deeper into rewards & recognition from the Aon 2017 Trends in Global Employee Engagement Report, perceptions of pay fairness relative to one’s contributions is the critical opportunity. So, not only does pay for performance work, but we actually hear that employees expect to see pay commensurate with their contributions very loudly from the millions of employees represented in our study and sentiment analysis.

These findings are not really that surprising and even more critical for leaders to understand in this environment of rapidly advancing technologies and populist sentiment. What does technology and populism have to do with pay? Everything! Many employees feel they are being left behind or maybe even in fear that their job will soon be obsolete due to technological advancements. Technology has also allowed for greater transparency, and thus, ability to shine a light in large disparities between one’s pay and that of peers or senior leaders. Further, the populist sentiments around the globe— marked by cynicism and distrust in established leaders who drive a system that is not working—has bled into the average employee’s work experience. Over half of the global workforce (53% to be precise) do not think they are paid fairly, and behind this is a lot of anger, resentment, and fear.

What does this mean for leaders?

Be aware and be sensitive. First, understand that this is not just about people wanting to be paid more—this is very personal and about fairness for contributions and the 8+ hours a day people give you.

Gather more data. Measure perceived pay fairness and competiveness, compare to actual benchmarks (typical and non-typical comparators), and close gaps—either with actual pay, perceptions, or both. Also, dive into the data to understand how your people in your different performance categories feel about pay. Having low performers more satisfied with pay can lead to Prisoners in the Workplace. You have a real problem if your top performers are dissatisfied about their pay.

Think holistically. Drive a Total Rewards View that supports a compelling employee value proposition—pay is important, but pay is not everything and rarely what a company can be famous for.

Continue to drive pay for performance—but do it with excellence. This is key! Pay differences with unrealistic goals, performance management systems that are not tied to value creation, unclear pay-out criteria, poor manager delivery, among other factors, lead to perceptions of unfairness.

Be clear and transparent. Communicate as much as possible about total rewards value, why people are paid what they are, what is required for top levels of pay, what is required for higher pay in different roles, etc.

Develop people. Development drives engagement, engagement drives performance, and performance pays for higher rewards. Everyone wins! That’s fair.

Start a conversation with us

Need advice on how to develop fair and attractive compensation packages for your organisation? Get in touch with us.

Ken Oehler

Ken Oehler is a Partner in Aon’s New York office. He is responsible for the strategic direction, thought leadership, technology roadmap, and operations of Aon’s Global Culture & Engagement Practice. Ken specialises in developing culture, leadership, measurement, technology and rewards interventions that accelerate business performance. Ken earned a Ph.D. in Industrial & Organizational Psychology from DePaul University and a B.A. in Economics from the University of Michigan.

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Ken Oehler
Ken Oehler
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Stephen Hickey
Sydney, Australia