The Compensation Question – Which Is It?

A lot has been written recently about the idea of compensation as a driver of employee motivation – there seems to be evidence on both sides that money both is and is not the the thing people value most from their work experience.

The argument for is built upon survey tools and assessments in which employees at companies consistently list “Compensation” as a primary factor in a variety of opinions about work – satisfaction, engagement, retention, etc. The argument against is based on a growing body of evidence in social sciences, behavioral economics, and research from leading professional services companies that other factors – such as the intrinsic meaning of the work, the opportunities that the organization provides, and the lifestyle one leads in work and outside – are more important.

My view takes a bit of a different tack – I see both of these options as two sides of the same coin.

In his book Drive (which I’ve reference a few times as it’s simply the best summarization of the behavioral research on this topic), author Dan Pink describes the role of pay in this way:

Money is a motivator in the workplace, but in a strange way. If you don’t pay people enough, they won’t be motivated . . . the best use of money as a motivator is to pay people enough to take the issue of money off the table.

This would seem to be a strong piece of evidence for the “not” side of the argument. But when you take a look at the survey tools (for example, the survey tool referenced in the above HBR article ), you consistently see the question framed as “competitive compensation.” This word “competitive” is crucially important. Many people interpret this to mean that people find their compensation desirable. I don’t. What “competitive” means here, from an employee perspective, is to “take money off the table.”

If I’m a salesperson or marketing professional at Company X and I learn that they are paying me less than the market rate (compared to companies Y and Z if you have real data, or according to something like – suddenly money is back on the table. I’m not being paid for the value that I bring to the organization and now that’s the most important thing.

If a separate question were framed as “Desirable Compensation” – say defined as being paid in the top 10th or 20th percentile for people in your field, or say the top 10th percentile for income earners in your region or country – I think that on average people would rate that a much lower priority than some of the other factors people value less than many of the other factors, such as the work, the mission and the organization’s culture. (As an aside, I think there might be some organizations and industries where the “desirable compensation” figure is rated quite highly – financial services companies, for example).

Organizations who don’t pay competitive salaries are absolutely putting themselves at a disadvantage when it comes to hiring and keeping the best talent. However, organizations in this situation can positively impact their ability to attract and retain talent by taking a comprehensive view of the experience they over their people: their People Value Proposition. By strategically growing a different aspect of a people value proposition – offering more interesting, innovative work, a strong organizational culture or opportunities to grow for people to grow their skills – these organizations can compete for top talent that values their unique employee experience, even without the deepest pockets.