How do you feel when you get a raise? Happy? Rewarded? Motivated to work harder for that next raise? The hope of an increase in pay, followed by a raise, can increase employee motivation. However, the effect may not last. In fact, the “warm fuzzies” from a raise last less than a month, according to a recent study. If raises are distributed annually, performance motivation can dip for many months in
between evaluations. Some organizations have tried to keep the motivation going by increasing the frequency of raises. Currently, only about 5 percent of organizations give raises more than annually, but some larger employers like discount website retailer Zulily, Inc., assess pay quarterly. Zulily CEO
Darrell Cavens would like to do so even more frequently. “If it wasn’t a big burden, you’d almost want to work on it on a weekly basis,” he said. That’s because raises increase employee focus, happiness, engagement, and retention. CEO Jeffrey Housenbold of online photo publisher Shutterfly, Inc., also advocates frequent pay assessments, but for a different reason. The company gives bonuses four times a year to supplement its biannual raise structure as part of a review of employee concerns. “You can resolve problems early versus letting them fester,” he said. Another reason is to increase feedback. Phone app designer Solstice Mobile gives promotions and salary increases six times a year; with this structure, Kelly O’Reagan climbed from $10/hour to $47.50/hour in 4 years. The company’s CEO, John Schwan, said that young workers are especially motivated by the near-constant feedback. O’Reagan said, “Seeing that increase was like, ‘Wow, this is quite different than what I had ever dreamed of.’” You might be wondering how organizations can keep the dollar increases to employees flowing. Organizations are wondering, too. One tactic is to start employees at a low pay rate. Ensilon, a marketing services company, has coupled low starting salaries with twice-yearly salary reviews. Initial job candidates are skeptical, but most of the new hires earn at least 20 percent more after 2 years than
they would with a typical annual raise structure. No one is saying frequent pay raises are cheap, or easy to administrate. Pay itself is a complex issue, and maintaining pay equity adds another level of difficulty. Frequent pay reviews are motivating, but only for the people receiving them—for the others, it’s a struggle to stay engaged. If a person has a track record of raises and then pay levels off, it can feel like a loss of identity as a strong performer rather than a natural consequence of achieving a higher level of pay. The frustration can lead to lower performance and increased turnover for high performers. CEO Schwan acknowledged, “It’s definitely a risk.”
Questions
8-17. How can HR administer a complex pay structure that rewards pay increases on a regular basis?
8-18. Why are younger employees more likely to be motivated by very regular pay increases than older
workers?
8-19. In some countries, a national minimum wage or a “living wage” has been set by the government.
What are the drawbacks of such an approach to dealing with low pay?
Sources: R. Feintzeig, “When the Annual Raise Isn’t Enough,” The Wall Street Journal, July 16, 2014,
B1, B5; J. C. Marr and S. Thau, “Falling from Great (and Not-So-Great) Heights: How Initial Status
Position Influences Performance after Status Loss,” Academy of Management Journal 57, no. 1 (2014):
223–48; and “Pay Equity & Discrimination,” IWPR, http://www.iwpr.org/initiatives/pay-equity-anddiscrimination.
Go to mymanagementlab.com for the following Assisted-graded writing questions:
8-20. In regard to Case Incident 1, what cultural differences in collectivism/individualism might help predict motivation for the amount of vacation employees want to accrue and will take annually?
8-21. How would you design a bonus/reward program to avoid the problems mentioned in Case Incident 2?
8-22. MyManagementLab Only – comprehensive writing assignment for this chapter.
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