The compensation Dilemma - Can money buy engagement?

What is an ideal pay? how much should people earn, so they stay motivated. Does a higher pay guarantee better performance outcome? Well, if you were one among those who believed higher pay meant better performance and highly engaged employees, then you are in for surprise. There are a plethora of scientific researches that focussed on how money affect employee performance and motivation, and the results of most of these researches were fairly consistent, they all pointed out that the relationship between compensation, performance and motivation were weak. So, if in an ideal world, an employer were to allow an employee choose what they should be paid, their liking for the job would not have been any better.

Does better pay make our jobs much more fun, or does it negatively affect our motivation levels? A meta-analytic study by Tim Judge and peers involving datasets from 15,000+ individuals found that the correlation between employee pay and job satisfaction is very weak. Additionally, the correlation between an individual's satisfaction with their pay was not dependent on their actual pay. These results were very much consistent with the Gallup engagement research findings of negligible difference in employee engagement by pay level.

Does pay negatively affect employee motivation?. There is a need to focus on the intrinsic and extrinsic motives of an employee. While most of the researches were inconclusive of negative impact of pay on employee motivation, a meta analytic study by Edward Deci and peers found that pay could negatively affect an employee's intrinsic motivation. Employees who are high on intrinsic motivation enjoy the job they do and are highly passionate of what they are doing irrespective of what they are paid. In such cases, any attempt to boost extrinsic rewards could diminish employee's intrinsic motivation instead of enhancing it. Another recent study by Yoon Jik Cho and James Perry found that employees who are high on intrinsic motivation were 3x engaged in comparison with employees who are high on extrinsic motivation.

These findings have significant implications for global organizations that are at present in the midst of fighting the war for talent and dealing with the great resignation. Organizations who look to stay market competitive and promote an engaged workforce will need to think beyond employee compensation. Money cannot buy engagement. In this era of customization and personalization, there is also an immediate need for organizations to move away from the one size fits all approach.