How Much Does Pay Level Affect Motivation?

If you’re a hiring manager, recruiter, or HR professional, you’ll have to deal with the question of payment at some point — as in, “How much should I pay this employee/candidate?”

Because pay levels and salary budgets are such thorny issues for employers and employees alike, it’s easy for everyone to become a little obsessed — but to treat pay as if it were the “Alpha and Omega” of motivation and engagement would be a mistake. Just look at open-source enterprises like WordPress, Mozilla, Magento, OpenOffice, and Ubuntu, all of which have leveraged the power of enthusiastic volunteers receiving no financial rewards to build world-class products and services. Similarly, the 2012 London Olympic Games were largely run by 70,000 volunteers.

Clearly, pay is not the only way to motivate people — nor is it necessarily the strongest way. Research suggests  that, when it comes to motivation, intrinsic rewards are what really get people going. If a job lacks four basic elements — a sense of meaningfulness; a sense of choice in how we work; a sense of competence; and a sense of progress—then most of us won’t be motivated to do the job, no matter how much it pays.

This is not to say that pay level plays absolutely no role in motivation. I just want to make it clear that plenty of other factors affect motivation levels as well.

How Does Pay Affect Motivation?

That being said, we can now move on to another question: “In what ways does pay affect motivation?”

For starters, a competitive pay rate is clearly a great way to attract top talent. It also enables staff to fully focus their creative energies on their work — because they won’t have to take multiple jobs to make ends meet.

However, a Gallup survey shows that motivation levels don’t increase as salary increases. According to the survey, 30 percent of people earning less than $36,000 per year are engaged at work; of those earning between $36,000 and $89,000, 28 percent are engaged; and of those earning $90,000 or more, 30 percent are engaged.

The takeaway here is that you can’t expect to raise someone’s engagement levels simply by offering a 10 percent raise. To achieve higher engagement levels, you’ll need to work on the aforementioned intrinsic reward factors.

The Importance of Pay Equity

Pay equity — the feeling that one’s pay is on par with those around them — is thought to be a very powerful motivator (or de-motivator, depending on the situation). Research shows that people will be less motivated to take on a new job if they believe that other people were offered higher pay packages for similar positions. Similarly, research presented in the WorldatWork Journal  Found that 25 percent of employees say that fair pay is the most important thing they want from an organization.

Employers, then, need to pay employees at the right levels, and they need to show employees that pay is allocated fairly in the organization.

The Limits of Pay as a Motivator

It’s important for employers to develop fair, effective pay strategies, but they must also be aware of the limited extent to which pay can actually impact employees’ satisfaction levels.

As it turns out, some personality types are more primed to be less satisfied with their pay. A study in the Journal of Management Research  found that more extroverted employees tended to have more positive outlooks about their pay levels. On the other hand, employees who scored high in the areas of conscientiousness, neuroticism, and openness were less likely to be satisfied with pay levels. Another study published in the Journal of Applied Psychology  drew similar conclusions.

All of this means that even the most perfect pay strategy will not please and/or motivate every employee.

While it’s clear that pay can affect motivation — and that employers should endeavor to build effective compensation strategies — it’s also clear that employers need to pay attention to intrinsic rewards if they want to optimize motivation levels among their workers.