How do you feel when you get a raise? Happy? Rewarded? Motivated to work harder for that
next raise? The hope of an increase in pay, followed by a raise, can increase employee
motivation. However, the effect may not last. In fact, the “warm fuzzies” from a raise last less
than a month, according to a recent study. If raises are distributed annually, performance
motivation can dip for many months in between evaluations.
Some organizations have tried to keep the motivation going by increasing the frequency of
raises. Currently, only about 5 percent of organizations give raises more than annually, but some
larger employers like discount website retailer Zulily, Inc., assess pay quarterly. Zulily CEO
Darrell Cavens would like to do so even more frequently. “If it wasn’t a big burden, you’d almost
want to work on it on a weekly basis,” he said. That’s because raises increase employee focus,
happiness, engagement, and retention.
CEO Jeffrey Housenbold of online photo publisher Shutterfly, Inc., also advocates frequent pay
assessments, but for a different reason. The company gives bonuses four times a year to
supplement its biannual raise structure as part of a review of employee concerns. “You can
resolve problems early versus letting them fester,” he said. Another reason is to increase
feedback. Phone app designer Solstice Mobile gives promotions and salary increases six times a
year; with this structure, Kelly O’Reagan climbed from $10/hour to $47.50/hour in 4 years. The
company’s CEO, John Schwan, said that young workers are especially motivated by the
near-constant feedback. O’Reagan said, “Seeing that increase was like, ‘Wow, this is quite
different than what I had ever dreamed of.’”
You might be wondering how organizations can keep the dollar increases to employees flowing.
Organizations are wondering, too. One tactic is to start employees at a low pay rate. Ensilon, a
marketing services company, has coupled low starting salaries with twice-yearly salary reviews.
Initial job candidates are skeptical, but most of the new hires earn at least 20 percent more after 2
years than they would with a typical annual raise structure.
No one is saying frequent pay raises are cheap, or easy to administrate. Pay itself is a complex
issue, and maintaining pay equity adds another level of difficulty. Frequent pay reviews are
motivating, but only for the people receiving them—for the others, it’s a struggle to stay
engaged. If a person has a track record of raises 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.
CEO Schwan acknowledged, “It’s definitely a risk.”
Sources: R. Feintzeig, “When the Annual Raise Isn’t Enough,” The Wall Street Journal, July 16, 2014, B1, B5; J. C. Marr and S. Thau, “Falling
from Great (and Not-So-Great) Heights: How Initial Status Position Influences Performance after Status Loss,” Academy of Management Journal
57, no. 1 (2014): 223–48; and “Pay Equity & Discrimination,” IWPR, http://www.iwpr.org/initiatives/pay-equity-anddiscrimination.
Questions
8-17. Do you think frequent, small raises versus annual, larger raises is more motivating? Why
or why not?