Does Compensation Affect Employee Morale?

A six-figure (or higher) paycheck and generous bonuses and perks may sound like they will lead to happy employees, but in truth, compensation is only part of the story when it comes to employee morale. Several factors influence employee morale, including leadership, the working environment and nonmonetary recognition for a job well done. However, that doesn't mean that compensation should be an afterthought.

Employee Satisfaction

In 2010, Workplace Dynamics conducted a survey of employees in several major metropolitan areas about the best places to work. In every city, respondents consistently ranked pay and benefits at the bottom of the list of criteria for what makes a great place to work. While employees want to be compensated fairly for their work, the study results indicate that good leadership, and being confident in their leaders, is more important than pay when it comes to job satisfaction.

Employee Turnover

Most employees do not leave their jobs simply because another job offers more pay, according to the Center for University Learning at Kennesaw State University in Georgia. Although many employees claim during exit interviews that they are leaving for more money, in fact most people leave jobs because they are not satisfied with the company, its leadership or the working conditions. However, pay does become an issue and affect employee morale when the employees view the pay as unfair or inadequate for the work they do. If employees believe that they are being paid less than their co-workers doing the same job, or the rates are not competitive within the industry, employee morale can suffer.

Perks

While pay may not influence employee morale as much as other factors, employers can boost employee morale by offering other perks in lieu of higher pay. Benefits such as the option to telecommute or a flexible schedule; mentoring programs; subsidized education and training; and on-site exercise and day care facilities are cost-effective ways to boost employee morale without increasing pay. Other low-cost perks that can increase morale include designated parking spaces, extra time off, a lunch with the CEO and company outings. A 2010 study of human resources managers by the staffing firm Robert Half International indicated that offering these types of perks to employees increased their loyalty to the company and helped them feel better about where they work.

Layoffs and Wage Cuts

One area where pay does influence morale is when employers cut pay across the board in an effort to prevent layoffs, the idea being that employees would rather have a job with lower pay than no job at all. However, in general, lowering wages often leads to decreased productivity and even resentment if the company's profits increase or the financial picture improves. Morale might also suffer if wages are increased unfairly, with some employees getting their wages returned before others, or if high-level executives continue to receive large paychecks and bonuses while lower-level employees endure cuts.

References

• "Dallas Morning News" newspaper; Employee Morale is About More Than Pay; Cheryl Hall; Jan. 2011
• MSNBC; Employee Perks Return as Pay Stagnates; Jane L. Levere; March 2011
• Center for University Learning; Myths of Employee Morale; 2003
• HR Tools; Rewarding Employees Doesn't Have to Cost a Fortune; Christine Campell; Feb. 2009
• "Slate" magazine; Raises Don't Make Employees Work Harder; Ray Fisman; March 2011