Taking Money Off the Table: Survey Says... Part 1

One popular school of thought maintains that simply giving employees a high level of base pay does more to boost productivity than making pay contingent on performance through incentives.  The best use of an employer's money, proponents maintain, is to pay people a premium sufficient to take the issue of money off the table.

Being a pragmatist, the first question that occurs to me is: How much of a premium are we talking about here?  And also: Is there some universal rule of thumb we can draw upon - or does the answer differ from person to person, circumstance to circumstance?

In an admittedly unscientific effort to gather some data, I decided to conduct a brief survey.  My thanks to the 116 people who completed the survey, enabling us to take a step toward an informed look at this question.  The purpose of this post is to introduce the overall survey results and to share some initial findings and my thoughts about them.

A quick profile of the respondents, who answered questions about their age, gender and occupational group:

Initial Findings

The Magic Number.  When asked "how much more base wage or salary would your employer need to pay you - if any - in order to 'take the issue of money off the table' for you, the overall mean response was 29.5%.  The responses ranged significantly though, from 0% (12 respondents, about 10% of the total, indicating that the money issue is off the table already - no need to pay them more) to 200% (2 respondents on the other extreme, indicating that their base income would essentially have to triple before the issue of money could come off the table).

Factors Influencing the Number.  The bar chart below shows responses to the question "In determining the percent you provided above, which of the following factors influenced you most?"

So external comparisons, the employee's sense of the going market rate for their position, is selected as the #1 influencer.  Living expenses come in second, probably not a surprise given the economic circumstances in which the question is being posed.  Internal comparisons, the employee's sense of their pay relative to that of internal peers, comes in a distant third. 

The 11% of respondents who chose "other" cited a number of other influences, including:

• The need to fund their retirement
• Their personal performance record
• Their sense of worth
• The "net" of factoring in their current incentive/bonus opportunity
• Work/life balance
• Length of time without an increase/salary freezes

(Very) Initial Thoughts

What it requires to "take the issue of money off the table" - let's call it the pay angst factor - like reward fairness, is a complicated, murky and highly personal thing.  It is also a relative thing, influenced not only by external and internal comparisons and living expenses, but also by the overall reward package in which the base wage resides, and by the work experience itself. 

If, for policy setting purposes, we had to peg a "rule of thumb" for the kind of premium we're looking at here, acknowledging the degree of variation and being willing to go out on a really long limb, I'd say it comes in somewhere between the 75th and 90th percentiles of the external market (given my experience that, across surveys and populations, the 75th percentile of pay tends to come in at around 15%-20% above median on average, and the 90th percentile around 50% above median on average).

Next up, a look at how demographics - particularly age and gender - affect our pay angst factor.

Stay tuned!

Comments

[Bsalacuse]

Thank you for the great post. It is interesting that the prevailing mindset for answering the survey question was 'external comparisons'. If this particular mindset prevails throughout organizations, than a significant % of employees already have had compensation "removed from the table", i.e employees who are already beyond the market P75 for their job. (10-15%?). This might reduce the overall financial exposure to a company in taking this initiative to much less than the differential from P50 - P75 (10-15% of current payroll?). It might be closer to 3-5% of overall payroll in organizations with many employees who are newly tenured in role and who (presumably) would not being making an exact external median-market comparison for themselves.

[new supervisor training charlotte]

I think this data is really interesting. I am not surprised that most people base their decision off what other people doing their job are making... if people think they can make more money doing the same job somewhere else why would they stay? I am interested to hear about the rest of the data you collect! Thanks for sharing!

[Taryn]

It would be great to do this research and surveys using a greater sample and across I industries to slice and dice and determine if there were relationships between generations and industry types