Employee motivation is one of the most important factors for business growth. Motivated employees create a positive working environment which fosters superior customer service, higher sales or improved productivity, adding value to a company’s bottom line.
Studies have shown that disengaged employees can cost organizations up to $550bn every year. Whereas motivated employees can more than double annual revenue.
But what is the best way to achieve this sought-after motivation? Many believe that employee compensation in the form of a salary is the best way to maintain a motivated workforce. Whilst others believe this has less effect or can even de-motivate staff. Instead, they place more value in other known motivators such as benefits, promotional opportunities, a company culture of empathy, recognition and job satisfaction.
Salary as motivation
In a study by the industrial psychologist, Edwin Locke, Ph.D., four methods for motivating employees were pitted against one another. Locke’s aim was to discover which would improve employee performance the most. He found that the average improvement to performance was greatest when money was motivating, at 30 percent. This far outperformed the other motivators he compared it to, including increased employee decision making and changes to the job role.
Whilst studies conducted in America have championed the use of salary as a motivator, on a global scale the picture can be quite different. The American workforce is classed as individualistic, motivated by their own personal goals, of which salary is one. This explains why Americans are more likely to apply for extra working hours, the overtime pay is motivation.
In countries with a more collectivist tradition such as those in Eastern Europe and China, staff members are less motivated by individual gains such as salary. What inspires them is the idea of working towards the collective good of the team or the establishment.
So how does salary as motivation work? At a very basic level, employee pay provides an exchange for services. This allows the worker to live a comfortable life in return for their hours and efforts. At its most simple, this is why all salaried individuals go to work. In lower-income countries, once an employee’s basic needs are met, salary no longer motivates them. They have had their basic needs met and their existing level of comfort is satisfactory.
In developed nations, it is important to consider the symbolic value of an employee’s pay rate. To that member of staff, their salary is a direct representation of their value to the business and how much their employer appreciates their hard work. And it is this that is the real motivator. More than the actual number on their payslip that represents their annual salary or an hourly wage.
To this end, it is essential to pay staff correctly and on time. Payroll software can be very helpful in guaranteeing this occurs, particularly for small business owners. This shows employees that their work is meaningful and valued.
Team members also value transparency when it comes to salaries. Indeed where salaries might be on the low side, transparency can avoid de-motivation. Companies need to be honest about how much they can afford to pay employees, and what the prospects are for the future.
For example, if salaries are lower than industry averages, this should be outlined from the beginning in the job description. Furthermore, employees should understand why. This is common in the non-profit or charity sectors. Employees accept lower salaries due to the nature of the organization for whom they work.
There are also benefits in sharing the salary range for a particular role and where an employee sits within that bracket. The reason for this is that whilst salary can be a motivating factor, it can also serve as a de-motivating force. For example, if an employee receives a smaller than expected pay increase or their bonus does not match expectations. This mismatch of expectations or lack of transparency will lead employees to feel undervalued. A feeling which can have a huge effect on their motivation at work.
Studies have shown that salary may be a motivating factor but only in the short term. In research by Timothy Judge, salary affected worker’s productivity less than 2 percent of the time. So, if salary isn’t a fail-safe motivating force, what are the other motivating factors that can impact employee performance.
Recognition and bonuses
According to the 2019 Compensation Best Practices, 73 percent of organizations use a variable pay plan and incentive bonuses on top of base pay to reward hard work. Rather than expecting salary alone to motivate a workforce, linking salary to job performance shows recognition of effort, improves transparency within the business and thus improves employee motivation.
By identifying and recognizing the triumphs of top performers and tying their achievements into the bigger picture of the company’s success, employees are proven to be more motivated to improve their job performance in the future.
Referred to as Performance Related Pay in the UK, at construction firm Taylor Woodrow, 94 percent of employees are in favor of this system. In clear guidelines set out by human resources and communicated to all, staff members are informed that employee salary is based on the company’s ability to pay and the individual’s contribution to their success. In other words how skilled are they and whether they have met their objectives.
This method stands less chance for success in countries like Japan. When Japan’s Mazda Motor Corp opened a branch in Michigan, USA, the recognition in the form of medals, attention and applause did not sit well with the incumbent Japanese staff. These workers generally prefer to focus on the overall company goals and do not value material rewards.
Recognition and bonuses are motivating when linked to performance and set out in a transparent way.
In a study, Timothy Judge and Barry Staw noticed that motivation at work could be directly related to job satisfaction.
Indeed, this is one motivating factor that is consistent across all countries and cultures. “In a study of seven countries, employees in Belgium, Britain, Israel, and the United States ranked “interesting work” number one among 11 work goals.” This is backed up by a second study where German employees, Dutch employees, and American employees rated “the fun of work” as the most important factor when choosing employment.
But how do you achieve job satisfaction in employees? According to the 2019 Compensation Best Practices, after personal reasons, professional advancement is the most common reason given when an employee voluntarily leaves a company. This suggests that promotions and opportunities to progress are crucial in engaging new hires and maintaining existing staff as motivated employees.
Tesco takes a proactive approach to employee motivation. They recognize the individual and their aspirations through regular performance management reviews and personal development plans. It is through this system that they encourage progression and promotions. Thus ensuring the job satisfaction and motivation of their employees and maintaining outstanding customer service.
As salaries stagnated in 2018, employers became more resourceful in offering a wider range of employee benefits to attract new employees and retain existing staff. The benefits on offer included flex-time, offered by 38 percent of organizations, paid time off as family leave, offered by 32 percent of employers, and a four-day working week, as offered by 10 percent of companies.
These are often to supplement the more traditional options on the table, include stock options and healthcare.
Idea Connect has conducted research which showed that benefits programs can boost performance by 44 percent. It is felt that this more personal, tangible approach to employee reward is more motivating. They recommend that employers work with their employees over a consultation period to build a benefits package they feel represents them and their needs.
From the way each staff member no matter how junior is called a ‘partner’ to their range of company benefits, Starbucks has employee motivation very much on the front burner. Even their hourly employees receive discounts, medical insurance, and vacations. Whilst those who work more than 20 hours a week receive extra perks including stocks in the company. This way, if Starbucks profits, all their partners do too.
The inclusion of benefits in a compensation scheme shows a more personalized approach to employee motivation that seems to pay off when it comes to productivity.
Company culture: empathy
According to a white paper by the Center For Creative Leadership, empathy within company culture is essential to employee motivation. This is a theory which tech outfit Businessolver backed up in a study conducted in 2018. They found that 95 percent of employees claimed they are more likely to stay with a company that is empathetic, and 81 percent would work longer hours for such a company.
Suggesting that a company culture of empathy is even more important than salary when it comes to employee motivation, 60 percent of workers surveyed said that they would take a pay cut to work for an empathetic company.
From a global perspective, nations that score highly on nurturing characteristics such as Denmark, Sweden, The Netherlands, and Finland tend to value empathy as an employee motivator more than in other parts of the world.
In real terms, an empathetic relationship between employer and employee involves a two-pronged approach. First, employers must be flexible and understanding about their staff’s life outside of work, allowing flexibility around personal or family issues and working hours. Lloyds TSB was way ahead of the game with their ‘Work Options’ program. The scheme aims to balance the individual needs of their workers with the requirements of the business. By taking the time to speak to employees, recognize the challenges they face and the milestones they approach, Lloyds TSB scored very high for staff motivation. Their exceptional customer service reflects that.
Another company that took the time to listen to their employees was online banking giant, Egg. Recognizing that their original offer of flexible hours wasn’t of value to all employees, they added in student loan assistance for their younger staff and part-time work options for caregivers. The result was a motivated workforce with the company’s best interests at heart.
An empathetic approach to all employee compensation from salary to benefits gives businesses the best chance of achieving maximum motivation in their workforce.
We can conclude that whilst salary and motivation do not go hand in hand, salary is an important part of a broader reward strategy as long as it is in a pay for performance format.
What it comes down to is employers showing their sense of fairness and their levels of empathy. This allows a nuanced approach that is flexible to the individual employee’s cultural background, needs and motivations. For employees for whom money is important, salary increases may be enough of a motivating factor, whilst others may need to know they work for an empathetic employer who appreciates their needs and aspirations.
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