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Pay May Not Be the Way to Employee Happiness, But It Doesn’t Hurt Either


When you think about employee recognition and rewards, what do you think of? Pay? Employee-of-the-month awards? Merit raises? Thank you cards? All of these, of course, can serve to either (1) show employees they are valued, or (2) motivate them to achieve effective performance. However, as was pointed out in the American Psychological Association’s Recognition Survey in August 2014, there is a gap between what employees value and what employers offer.

I recently had the privilege of being a panel member at the Work, Stress, and Health Conference in Atlanta, where panelists discussed common workplace myths surrounding issues of employee engagement, recognition and work-life balance. One of the issues we discussed is the myth that non-monetary recognition (e.g., awards, thank-you notes) are just as effective forms of recognition as compensation and pay raises.

According to the APA survey, 62 percent of employees value merit increases and 47 percent value fair monetary compensation, the two most valued forms of recognition. And yet, only 39 percent of employees reported their employer provides merit increases, and only 19 percent report they receive fair monetary compensation. Other tactics were much less valued, including verbal or written appreciation from one's supervisor (28 percent), peer-to-peer recognition (16 percent) and recognition ceremonies or events (11 percent).

But that wasn’t the meat of the results. Instead, it was also found that various aspects of recognition were predictive of key attitudes toward work. How effective supervisors were in providing recognition, how much employees valued the recognition they received and how fairly recognition was handed out accounted for significant amount of variance in whether employees say they work harder because of the recognition they receive (49 percent), employees’ reported motivation to do their best for their employer (44 percent) and employee job satisfaction (43 percent).

But, of course, a recent article on Forbes.com by Sarah Kauss, suggests that a “pay bump isn’t the answer to employee happiness.” While I do not dispute the importance of the issues she addresses (i.e., developing a culture of learning, creating a fun culture, executing culture imbued with purpose), and that sometimes additional funds are not available for salary requests, there are three primary problems with the article.

First, there is an illogical leap between not being able to “match a salary request” and “there are more effective ways to reward employees beyond compensation.” While I understand that sometimes the funds aren’t available for merit increases (especially as we saw during the recession), it seems like a fallacy to then simply argue that there’s more effective ways to reward employees.

Second, it is unclear what developing a learning, fun culture or executing culture imbued with purpose has to do with employee compensation. Working in a fun environment or feeling as though your work has meaning might offset the negatives of a slightly lower salary, but that’s all it does. If people could make more money in a similarly fun, meaningful environment, many of them would probably choose to do so.

Third, the implication that a fun environment is a “reward” for employees doesn’t make any sense. A reward is something that is received for doing something good – for achieving something. We reward people for their contributions, for the value they add. Creating a learning-oriented, fun culture with purpose would seem to be a driving factor to produce results.

I’m not saying that feeling as though one has made a difference or that one has fun at work is unimportant (I’ve written about the importance of being in a career or calling), but it is also important for an organization to demonstrate recognition for the contributions people made to that organization’s success. And if the APA study results are to believed, then supervisors need to be effective at providing recognition, recognition has to be provided fairly and employees have to value the recognition they receive.

Hence, my key takeaway from this article is that creating a learning-oriented, fun, mission-driven culture is a great way to create an environment that supports higher levels of engagement, performance and (to use the term expressed by the author) employee happiness, but if there isn’t any valued recognition offered when people perform well, that culture will be difficult to maintain. Providing recognition effectively means (1) understanding the type of recognition your employees value, and (2) utilizing those forms of recognition in a fair, effective way. And while I understand that sufficient funds are not always available to provide monetary forms of recognition, pretending it is unimportant (and maybe most valued by your employees), does not mitigate its actual value to those employees.

It is easy to convince ourselves that if employees just have fun at work and see purpose in their work, we can compensate (pardon the pun) for lower wages. However, the proliferation of that myth can lead to increasing gaps between what employees make and what they perceive to be fair, which can, over time, make it more difficult to attract and retain high-quality employees.

http://www.flickr.com/photos/photobunny_earl / CC BY-NC-ND 2.0

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About this Entry

This page contains a single entry by Dr. Matt Grawitch published on August 21, 2015 8:32 AM.

Applications of Psychology to the Workplace: Developing Healthy Aggression (Part 2) was the previous entry in this blog.

How Egalitarian Relationships Help Us All Thrive at Work is the next entry in this blog.

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