The Psychology behind Pay

What is money? We know it’s the stuff in our pockets, the numbers in our accounts and the stuff we wish we had more off! Money is something we all use and to some extent think about day in day out, yet we never really stop to ponder what it really is. I would suggest that in essence, money is ‘value’ and it’s worth knowing this because in a work place context, it represents the value we place on an individual’s skills and experiences.

The issues around money as a motivator is a complex one. One of the earliest writers on the subject, Frederick Herzberg concluded that money is a poor motivator but can certainly be a de motivator! Certainly many managers understand that money is not a good motivator on a day to day basis and I am sure many will agree with Herzberg. So what can we do to ensure money is not a de motivator? It goes without saying that we need to have suitable systems in place which allow us to pay people on time and regularly. That should be relatively easy these days and even the smallest company can outsource this to a payroll supplier. Far trickier is how we set the levels of pay within our company (and how by definition place a ‘value’ on our staff).

One of the biggest mistakes employers make is to keep pay as secretive as possible.  This presents a couple of difficulties; the first being that it doesn’t engineer trust (have something to hide?) and the second that it is increasingly becoming untenable because of equality and diversity legislation. So what to do instead? I realise this is somewhat counter intuitive but why not be open about pay. At the very least be informative as to how you set and award your pay. People might not always completely agree with their pay but if it’s transparent, perceived as fair (next to some sort of objective criteria) and they understand the rationale behind it (e.g. I get around 60% of the average market rate for my skills and job role), it’s far more likely to be accepted.

I’ve seen different ways of setting pay in organisations from internally focused systems to those that peg their rates to the market one. One which places more focus on the latter is better in my opinion. That doesn’t mean pay needs to be the best in the market but if it is at least competitive, it demonstrates the company places a suitable value on the individuals skills next to other employers. Lastly all of this should be done to make pay as minor an issue on a day to day basis and your attention should switch to creating the sort of work environment which really does motivate people on a day to day basis!