Reference no: EM132837320

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 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."

Questions:

-Are frequent small raises versus annual larger raises more motivating? Why or why not?

-What would be more motivating frequent raises or performance bonuses if the annual amounts were the same?

-Annual pay raises in the United States are expected to be around 3 percent in the next few years. Is this percentage motivating to employees? Why or why not?