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5 Facts About Employee Pay Increases Everyone Should Know

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Two separate studies published in the 2015 Journal of Economic Psychology and 2016 Journal of Resource Management add to the growing evidence that pay-for-performance incentives are likely to be effective, but there is a pay threshold that needs to be recognized. The smallest meaningful pay increase to employees has been found to be about 5 to 7 percent in the U.S, although many U.S. corporations award high-performing employees increases that are less than 5 percent. No wonder merit pay systems have been found to be ineffective. The findings from the two studies concluded:

1. Financial incentives are effective
The employees may not readily admit it, but the scientific evidence is clear that incentives to reinforce doing more or better quality work lead to higher production and quality.

2. Financial incentives are not detrimental to intrinsic motivation.
There is a popular belief that if you pay someone for doing something that they like to do, they will end up liking it less. This is false.

3. Justice reigns supreme
If there is one clear factor in managing pay for performance, it is that workplace justice is immensely important. Are incentive-related decisions consistent, unbiased, based on accurate information, and a transparent process? These perceptions trump all other factors; they are critical for pay-for-performance system health, success, and survival.

4. Avoid surprises
Science says that complicated reactions occur when people receive more (or less) pay for performance than what they had expected. Under-met expectations may make employees feel devastated. On the other hand, over-met expectations may lead to euphoria. Unfortunately, the negative reactions tend to last longer, and the euphoria tends to fade quickly.

5. There is a pay for performance sweet spot
The most recent research shows that it takes an incentive of 5 to 7 percent to cause a behavioral reaction in workers. This does not mean that managers should not give incentives below 5 percent. It means that managers should not expect any changes in employee behavior when small incentives are given.

Posted on 12-Jan-18


  






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5 Facts About Employee Pay Increases Everyone Should Know

5-facts-about-employee-pay-increases-inline2.jpg

Two separate studies published in the 2015 Journal of Economic Psychology and 2016 Journal of Resource Management add to the growing evidence that pay-for-performance incentives are likely to be effective, but there is a pay threshold that needs to be recognized. The smallest meaningful pay increase to employees has been found to be about 5 to 7 percent in the U.S, although many U.S. corporations award high-performing employees increases that are less than 5 percent. No wonder merit pay systems have been found to be ineffective. The findings from the two studies concluded:

1. Financial incentives are effective
The employees may not readily admit it, but the scientific evidence is clear that incentives to reinforce doing more or better quality work lead to higher production and quality.

2. Financial incentives are not detrimental to intrinsic motivation.
There is a popular belief that if you pay someone for doing something that they like to do, they will end up liking it less. This is false.

3. Justice reigns supreme
If there is one clear factor in managing pay for performance, it is that workplace justice is immensely important. Are incentive-related decisions consistent, unbiased, based on accurate information, and a transparent process? These perceptions trump all other factors; they are critical for pay-for-performance system health, success, and survival.

4. Avoid surprises
Science says that complicated reactions occur when people receive more (or less) pay for performance than what they had expected. Under-met expectations may make employees feel devastated. On the other hand, over-met expectations may lead to euphoria. Unfortunately, the negative reactions tend to last longer, and the euphoria tends to fade quickly.

5. There is a pay for performance sweet spot
The most recent research shows that it takes an incentive of 5 to 7 percent to cause a behavioral reaction in workers. This does not mean that managers should not give incentives below 5 percent. It means that managers should not expect any changes in employee behavior when small incentives are given.

Posted on 12-Jan-18







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