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10/15/2005

Want a successful company? Pay your employees well

Well-paid employees are the key to better job performances and ultimately a better performing company. According to Rice University researchers, managers are mistaken if they believe tinkering with one aspect of compensation - such as health care benefits - is going to have a meaningful impact on workers' overall pay satisfaction and enhance the company's performance. It's the salary that counts.

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When it comes to job choice, the most important incentive is salary. Similarly, the happier workers are with their overall pay, the more satisfied they are with their jobs and the better their company performs. According to university researchers, no single component of an employee's compensation, including health care benefits or pay raises, drives an organization's performance. Employees' overall satisfaction with their pay is key when it comes to the connection between pay and organizational performance.

"Although employees make some distinctions among different aspects of pay such as raises and benefits, their overall satisfaction or dissatisfaction with pay is what most influences their job performance and ultimately the company's performance," says Steve Currall with Rice's Jesse H. Jones Graduate School of Management.

"If a company is going to use pay satisfaction to produce better outcomes, it needs to consider all dimensions of employee compensation simultaneously."

Currall cites another set of circumstances where the same principle could apply.

"We've seen union leaders, for example, bargaining very aggressively for one or two specific aspects of their members' compensation package," Currall says.

"They might push strongly for an increase in health benefits, expecting that their members will be happy with the overall compensation if they are successful, but our study doesn't support that logic."

In an article in Personnel Psychology, titled "Pay Satisfaction and Organizational Outcomes," Currall and other university researchers provide the first study to examine different dimensions of pay satisfaction at the organizational level and whether they influence company performance collectively.   They also set out to determine if there is any link between employees' satisfaction with their pay and satisfaction with their union.

Based on prior studies, Currall and his colleagues knew that pay satisfaction influences workers' job satisfaction, which, in turn, affects their job performance.   As individual employees become satisfied or disgruntled over their pay, they share their attitudes and eventually influence other employees' behavior, all of which results in functional or dysfunctional performance norms and behaviors at the organizational level.

The researchers obtained data from annual surveys administered to 6,394 school teachers and other education professionals in 117 public school districts in Pennsylvania. The surveys on teacher perceptions and attitudes were used to determine their overall pay satisfaction, as well as their satisfaction with their union.   Organizational performance was based on both students' test scores and their dropout rates in those school districts.

"We hypothesized that if teachers were satisfied with their pay, they would put more effort into their teaching, thereby enhancing the academic success of their students," Currall explains.

Currall and his colleagues did find a significant association between teachers who were satisfied with their overall pay and their students' academic performance. They also reported preliminary evidence suggesting that employees' satisfaction with their union has some impact on their satisfaction with pay. But, the researchers found no connection between teachers' satisfaction with their pay and the student dropout rate.

"One factor which could explain this is that student socioeconomic status had a relatively strong and negative relationship with dropouts," says Currall. "School districts with higher socioeconomic status tended to have lower student dropout rates."

Co-authoring this study with Currall was Annette Towler of the Institute of Psychology at the Illinois Institute of Technology, Timothy Judge from the University of Florida's Warrington College of Business, and Laura Kohn in Rice's department of psychology.

For more information on this research,   contact Currall at scc@rice.edu or Debra Thomas in the Jones School at dthomas@rice.edu .