Does pay affect performance?

Whether looking at this from an employee’s or an employer’s perspective, this is one of those questions that certainly stimulates interesting debate yet doesn’t have a one-size-fits-all, black and white answer.

 

As specialist recruiters to the agricultural industry for over 25 years, at Merston Peters we’ve observed the good, the bad (and in some cases the downright ugly) affects of a wide range of contrasting pay structures and reward systems on both employees and employers. So, having seen it all before, what do we think works best, and do we think pay affects performance? Let’s look at some facts…

 

Would you expect higher pay to produce better results? Not necessarily. An experiment was carried out on hourly paid farm workers in the US. In an area where all the workers involved were used to earning no more than $3 per hour, the employer conducting the research paid one group $3 per hour and another $4 without each other knowing there was a difference in pay. Evaluating the effort and performance of both groups, there was no difference between the lower and higher paid group as both groups assumed their pay was the going rate for the work. However, when the group paid $3 per hour were given a surprise pay increase to $4 along with the explanation that it was because ‘the budget was bigger than expected’, they began working significantly harder (20% harder) than the other group already being paid $4. This was because they saw the increase as a ‘gift’ that the employer didn’t have to give and wanted to reciprocate with higher productivity. This experiment suggests employers should think about ‘how’ to pay their employees, as well as ‘how much’ to pay in order to build a happy, high performing team.

 

When looking at salaried roles in agriculture, in our experience when interviewing new candidates, more often than not one of the most common reasons cited for wanting to move jobs is that they don’t feel they’re being paid what they’re worth. In instances like this, pay can have a negative effect on performance, as the employee begins to feel less and less satisfied with their lot.

 

This sentiment seems to be as much about the feeling of ‘not being valued’ as it is financial. This tends to be more prevalent among long-serving employees who’ve become part of the fabric of the business yet whose continued efforts are taken for granted and are going by unrecognised by their employer. These loyal, long-standing employees can become further disgruntled by the arrival of new employees, who they’re convinced are being paid more or who are brought in above them. Of course it’s a very English thing to keep your pay to yourself, so in a situation like this the employee may contact Merston Peters if for no other reason than to value-check themselves in the market place.

 

Various studies have been carried out to look at the effects of pay inequality on performance in sport. For instance, a similar scenario can manifest itself when better players are lured from other teams by higher pay in the hope of improving performance. This pay inequality can have a negative effect by hindering cooperation between players but hopefully, by having a star player who can help other players to develop can in turn enhance the overall performance of the team. Unfortunately those that pursue the highest rewards can often be driven by the need for self recognition and show little team orientation. It’s all about balance.

 

 

Coming back to our salaried employees and the subject of ‘how’ their employers should pay them to get the best performance from them rather than just ‘how much’ they should pay, let’s consider some options. When looking at employees directly responsible for sales /outputs, should pay be structured as a lower basic with a higher rate of commission? This can be highly motivating to a certain type of individual but can potentially drive behaviour that isn’t appropriate within the relationship-centric environment of direct to farm sales. As one wise individual stated “you can eat a sheep once or shear it many times”, additionally there may be hidden pitfalls for the employee too. For example, a lower basic isn’t helpful when applying for a mortgage, which is tougher than ever nowadays. And what happens about income levels if the usually high-performing employee is out of action long-term due to accident or illness? In this scenario, there needs to be commitment and support from the employer. There does, in our experience, seem to be a correlation between low basic and overall poor rewards portfolio.

 

Some of the best employers offer flexibility in terms of basic commission mix and the forward thinkers offer a menu approach where there is an agreed cost of employment and the employee can choose what benefits they value. Within the sales environment most employees look for a fair and transparent reward system for them and their colleagues; for example if you produce double the contribution you earn double. Employers looking to nurture their employees need to look beyond the pay packet into the lives and needs of their people. It’s a good guide to how they invest in their people and within agriculture, and how it reflects on the importance of credibility and long term relationships. Additionally, in a highly competitive market with a real shortage of highly talented employees, employers need to ensure that their reward structures are not a disincentive for either potential or existing employees.

 

It is a self-fulfilling prophecy that employers who utilise Merston Peters already understand the importance of employee attraction and retention, our guarantee to complete an assignment is underpinned by the attitude of the employer towards a broad range of aspects of which remuneration and reward structures remain reasonably important.