Friday Highlight  

Pay and performance in the asset management business

2. There are various different ways of calculating total remuneration (ie measuring input or output factors or some ratio), which has an important impact on work style and output. In other words, you could measure hours worked or widgets made or a ratio of the two, as well as experience and qualifications etc. We have known for 100 years that the way we calculate pay has a profound impact on the way people work.

3. Changes in the way of calculating remuneration can have dramatic short and long-term consequences, as well as unintended consequences on many aspects of behaviour (such as teamwork, trust and work style). Change the formula and you can have real disruption; more so with the extrinsically motivated. Look at the history of public service strikes for evidence, when small changes in how wages were calculated were made.

4. The relationship between (overall, total) pay and general (and specific) job satisfaction is positive but very weak, with correlations around r= 0.10 and therefore accounting for little of the variance. Even for those extrinsically motivated, other factors like personal autonomy or trust in and admiration of one’s boss play a more important role. Money plays almost a trivial role in job satisfaction as long as people are paid fairly and at roughly market rates.

5. The relationship between actual pay and pay satisfaction is around r= 0.20, accounting for about 5 per cent of the variance. That is, there are many other factors that determine pay satisfaction than actual pay levels. We know that pay expectations, previous experience and personal attitudes to, and beliefs about, money play a more important role than the actual amount of money received.

6. Remuneration packages attract people to organisations but do not keep them there: ie it is implicated much more in job attraction than retention. It is easy to compare potential jobs by the package offered, which is why these facts are less and less clearly stated. The package, if clear (and honest) may be an attractant but it will not ensure loyalty or satisfaction.

7. One of the most powerful influences of pay on job satisfaction is the perception of fairness and equity. That is, how much others are paid relative to one’s own package is more relevant than absolute or total rewards; hence the saliency of pay secrecy. It is not how much you are paid, but how much your boss and colleagues are paid.