Conventional wisdom in HR circles suggests that money isn’t the most important thing on employees’ minds. That conclusion is backed up by reams of studies in which employees consistently rank other factors ahead of compensation when it comes to job satisfaction.

For example, a scientific literature review conducted way back in 1957 concluded that pay ranked sixth in importance, behind things like job security, interesting work and opportunities for advancement. Subsequent studies found that pay ranked anywhere from second to eighth in importance. And many HR experts concluded that even these studies overestimated the importance of money, because by asking the question researchers were prompting employees to think about pay.

Guided by these studies, the HR profession has traditionally focused most of its attention on the softer side of job satisfaction. You needed to pay people a fair wage, of course, but the real key to recruitment and retention were factors such as engagement, sense of purpose, work-life balance and career development.

What they do vs. what they say

Meanwhile, a provocative (though widely ignored) review published in 2004 pointed out a key flaw in all of these studies: They reported what employees said, not what they did. Meanwhile, a slew of other studies, which looked at employee behavior, painted a very different picture. For example:

  • A 1980 meta-analysis (an examination of multiple individual studies) concluded that introducing individual pay incentives increased productivity by an average of 30%. Job-enrichment activities, by contrast, boosted productivity by less than 9 to 17%.
  • A 1985 meta-analysis found that “financial incentives had by far the largest effect on productivity of all interventions.” They were four times more effective than efforts to make the job more interesting, for example.
  • A 1994 meta-analysis found that individual pay incentives increased productivity by an average of 44%.

Other studies have teased out the importance of money in job candidates’ willingness to take a job. In some studies, for example, people are presented with various “packages” of job characteristics such as pay, location, type of work, average time to promotion and so on, and asked which offer they’d be most likely to accept.

This indirect approach finds that pay is by far the most important factor in determining whether someone will take a job – nearly twice as large as any other attribute. Yet when candidates were asked directly about which factors were most important in making their decision, they consistently ranked other factors ahead of pay.

Why the discrepancy? The authors conclude that social pressure makes people downplay how much they care about money. They don’t want to think of themselves as crass money grubbers, and they certainly don’t want others to think of them that way. That’s especially true when it comes to their current or potential employers. Since “everyone knows” that pay isn’t what matters most, who’s going to say “I’m mostly here for the money”?

Implications for managers

If you’re trying to hire and retain the best people, it’s important to understand this disconnect between words and actions. Of course you should consider all of the factors that make a job attractive. And these findings don’t necessarily suggest that you need to throw heaps of cash at people to hire or retain them.

But you do need to be comfortable talking about money with your people and recruits – to find out how they feel about their compensation, to make sure they understand why they’re paid what they are, to explain why you believe their pay is fair, and to find out whether they think otherwise. In fact, the research suggests that you need to be proactive about these discussions, because people will underplay how much money really matters to them. And that could lead to some nasty surprises.


Source: Rynes, S. L., Gerhart, B., & Minette, K. A. (2004). The importance of pay in employee motivation: Discrepancies between what people say and what they do. Human Resource Management, 43(4), 381-394.

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