Shawnee Love   •  
November 14, 2014

Raises and wages in general are how employees measure their own worth (in comparison to peers as well as against their past jobs, future opportunities and recent efforts).  It is also how they perceive that you value their work.  Thirdly, base pay enables employees to purchase products and services that fulfill their needs and wants.  Following this logic, for base pay and subsequent raises to positively affect a worker, the money granted must leave the employee:

1. feeling positively about his worth in comparison to peers,
2. seeing the wage as a good step towards the future opportunity he is working towards,
3. agreeing the money fits the effort he put in and the job he does,
4. able to purchase the same and often more of that which he expects and needs (the latter being a good reason why minimum wage doesn’t satisfy).

Employees tend to agree with their company’s pay practices if they meet the criteria above.  Stray from those criteria and you will have people unhappy with their pay, no matter how well you pay. 

For example, a well paid employee (according to the external market and in reference to peers), will find it hard to keep a smile on his face if he doesn’t get a raise each year.  The reason: criteria 2 and 4 aren’t being met. 

Managers often think the peanut butter raise is the “safest” raise to give.  They “spread” the raises on equally with everyone getting the same percentage.  In delivering this raise, the employer highlights the fairness of treating everyone the same.  As a group, it is hard to argue with that type of logic; however, the peanut butter approach does jack for personal motivation since it ignores the extra efforts and significant accomplishments of individuals.  What you are really doing is telling your hardest working and highest performing people that their extra efforts are wasted.  In the face of that message, those top performers have 2 options:

• Reduce their efforts, or
• Leave for another company where their extra efforts will be reward.

Since most organizations want to encourage high performance and keep good people, this approach is rarely recommended. Using our criteria above, the peanut butter approach misses the boat on #1,#2 and #3.

It is also difficult to get good results from giving significant raises to people who don’t view their efforts as outside of the norm.  i.e., if an employee works hard every year but gets a bigger raise than in previous years, he might feel criteria 3 was violated even though it worked in his favour.

As you can see from these examples, so much of the success of the raise is tied to the employee’s own internal barometer that the manager must be an expert communicator, amateur psychologist, and master strategist to do something that at face value seems simple- give an employee more money.