Case study

How do you feel when you get a pay rise? Happy? Rewarded? Motivated to work harder for that next pay rise? The hope of an increase in pay, followed by a pay rise, can increase employee motivation. However, the effect may not last. In fact, the 'warm fuzzies' from a pay rise last less than a month, according to a recent study. If pay rises are distributed annually, performance motivation can drop for many months between evaluations.

Some organisations have tried to keep the motivation going by increasing the frequency of pay rises, although the practice isn't widespread. As of 2014, only about 5% of organisations in the United States awarded pay rises more often than annually. The element of surprise and the timing of the pay rise is important too. In a recent study in Germany, researchers looked at the effect of providing a small, unexpected pay increase to temporary workers employed on a short-term administrative project in a library. Interestingly, they found that those workers who received the pay rise in two parts instead of one performed substantially better than those who received the same amount of money as a one-off increase before they began working. Study author Dirk Sliwka noted that, 'The fact that you get a [pay] increase increases your motivation' although he warned that the effects of a pay rise tend to wear off quickly. 'It doesn't matter as much how big the increase is. What was generous yesterday seems normal today.'

Some organisations are doing away with the traditional annual pay rise and instead choosing to reward their workers on a case-by-case basis. For example, at Mother Earth Cleaners, a cleaning company based in the United States, founder Tekla Wlodarczyk Nez argues that continually reviewing and rewarding individual performance in this manner can have a more powerful effect on employees than the typical annual increase. 'I think it is much more meaningful to an employee to get a raise out of the blue ... [At our company] this is a way to tell [employees] that we value them and they are doing a great job. If the raise is expected and automatic, why work any harder, why take a class, why improve?'

It's important to note, however, that frequent pay rises and pay reviews are neither cheap nor easy to administrate. Pay itself is a complicated issue, and maintaining pay equity adds another level of difficulty. Frequent pay reviews are motivating, but only for the people receiving themfor the others, it's a struggle to stay engaged. If a person has a track record of pay rises and then pay levels off, it can feel like a loss of identity as a strong performer rather than a natural consequence of achieving a higher level of pay. The frustration can lead to lower performance and increased turnover for high performers. Clearly, the frequency of pay rises is complex and there are no easy solutions, so organisations must think carefully about how to implement this reward!

Questions:

1. Disadvantage of frequent pay rise in terms of motivation of individuals.

Disadvantages

Effort-performance relationship

Performance - rewords relationship

Rewards- personal goals relationship