The Salary Factor: Increasing Employee Engagement

Employee engagement is a buzzword in management circles. Creating and sustaining high levels of engagement is a result of a symbiotic relationship between employers and employees. Engaged employees are more likely to act in ways that are beneficial to the organization. In turn, employers who are committed to enhancing the well-being of their employees will foster employee engagement and successful organizations.

There are many engagement strategies and most of them focus on the softer issues of management. These include things such as leadership development programs, creating opportunities for staff to provide feedback, training and meaningful annual evaluation processes. Thus far, organizational engagement strategies have largely avoided the issue of salary. However, recent research indicates that we should add salary to our engagement strategy bucket.  “After all, a person’s primary reason for being employed is getting paid!” (Smith).

PayScale, a compensation software company surveyed 71,000 employees to study the relationship between pay and employee engagement. “The study results revealed that one of the top predictors of employee sentiment, including ‘satisfaction’ and ‘intent to leave,’ was a company’s ability to communicate clearly about compensation”. They discovered that salary has direct correlation to engagement levels (Smith).

However, the correlation wasn’t related to the amount of salary an employee received. Instead, the research revealed that the important factor is pay awareness – helping employees understand whether their pay is fair or not. In other words, the conventional wisdom of ‘pay more to keep them engaged’ was debunked. Here is a summary of what the research revealed:

What we believe about pay

This research clearly shows that most employees do not understand market salary norms. As a result, this misunderstanding becomes a means by which we become disillusioned about our work. “Pay is a crucial component of engagement because it’s not just a number; it’s an emotional measure reflecting how valued an employee feels by their employer. And it turns out, how people feel about their salary plays a huge role in how engaged they are in their work” (Smith). This study revealed that, “it is more effective for employers to compensate top talent at market value and discuss how pay was determined than to pay them more than market value and keep company compensation practices shrouded in secrecy” (Smith). Clear communication is critical!

This research teaches us that employers need to:

  1. Equip themselves (and their managers) with accurate data about the fair market price for their jobs
  2. Communicate this information to their employees. In the absence of communication, people will generally assume the worst.
  3. “Remember that how their employees feel about compensation matters just as much as what they’re actually being paid” (Smith).

I believe there is also a dark side to salary transparency for for some employers. While you may provide fair salaries to your middle or lower level staff, what about your C-Suite? If executive salaries are above market value then you have created an expectation that this should be true at all organizational levels.

“When it comes to having a more engaged workforce, you can’t assume that an employee’s perception about pay matches reality” (Smith). How effectively does your organization understand and communicate compensation?

Head ShotDr. Jeff Suderman is an underpaid professor, fairly paid consultant and overpaid pracademic who works in the field of organizational development. He partners with clients to improve culture, leadership, teamwork, organizational alignment, strategy and organizational future-readiness. He resides in Palm Desert, California. Twitter: @jlsuderman


Dave Smith (Oct. 5, 2015). Most People Have No Idea Whether They’re Paid Fairly. HBR online.

Psychic Salary: What Gets You Up in the Morning?

Once a year, Amazon employees get an interesting opportunity.  They are offered cash to quit working at their company. The first offer is worth $2,000. Each successive year it increases by $1,000 up to a maximum of $5,000. This creative idea began at Zappos, a company known for their innovative approach to organizational culture.

So why do organizations pay employees to leave? The premise is a simple one, “unhappy people make for unhappy companies” (Harvard Business Review). We have all worked with Poisonous Peter (or Petra). They can suck the life out of the best job. As Jeff Bezoes, CEO and founder of Amazon states, “Great companies are great precisely because they stand for something special, different, distinctive. That means, almost by definition, that they are not for everybody. It takes a certain personality type to thrive…if there isn’t the right fit, it makes perfect sense to quit” (Harvard Business Review). Paying employees to leave can serve the purpose of weeding the organizational garden.

But there may be an even more important reason. Pay-to-leave incentives make employees regularly review a very critical question – what gets you up in the morning? Because work is personal, we need to be motivated to perform our best. The pay-to-leave offer makes employees re-examine their motivation each year.

At a recent event hosted by the Coachella Valley Small Business Development Center we heard an example of this concept. Jennifer Di Francesco serves as the Spa & Sports Club Director for Toscana Country Club, a prestigious country club in our region. Each spring Jennifer has an interesting challenge. Due to a high population of seasonal residents who winter in the desert, she has to lay off almost all of her staff for five months during the slow season. Despite this challenge, she notes that almost every staff member chooses to return.

While she does not offer pay-to-leave incentives, her unique situation provides a different version of this concept. Instead of pay-to-leave, her employees are faced with a decision of pay-to-stay. Similar to the Amazon model, it makes her employees examine what is important. Jennifer believes that an employee’s decision to return is rooted in the value of their ‘psychic salary’, an idea promoted by Holly Steil in her book Neon Signs of Service. Psychic salary refers to the amount of non-financial value that an employee derives from their job. She realizes that there are more reasons than just money that keep employees happy. Similar to Amazon, Toscana Club employees must re-examine what gets them up in the morning on an annual basis.

Wise employers figure out what contributes to their employee’s psychic salary and intentionally build it. Jennifer notes that club prestige and a healthy work environment are two things which help her foster this. For your team, it may be the location of your business, the boss they work for, scheduling flexibility or organizational culture.

Research by the Gallup organization reveals that only 30% of Americans say they are engaged at work (Why We Hate Work: Issues of Engagement). This means that most of us are not creating the psychic salary that employees need to feel engaged. Peter Drucker summarized it well; “culture eats strategy for lunch”. If we fail to make our employees examine their motives, salary doesn’t matter.

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Head Shot

Jeff Suderman is a strategist, professor and consultant who works in the field of organizational development. He works with clients to improve leadership, teamwork, organizational alignment, strategy and organizational Future-Readiness. He resides in Palm Desert, California. Twitter: @jlsuderman

Bill Taylor (April 14, 2014). Why Amazon is copying Zappos and paying employees to quit. Retrieved from Harvard Business Review.