The bigger the pay cheque, the happier the internal customer? – The Salary vs. Satisfaction Debate

By: J. N. Halm

Money answereth not all things, if results of a number of studies are anything to go by. This is in direct contradiction to what the Wise man said in the Good Book. According to some studies there is a limit to the influence money has on the satisfaction of employees. In other words, money does not answer everything, especially the question of what really makes the internal customer happy.

Money is good. Very few people would attempt to dispute this assertion. The importance of a good salary in ensuring that an organisation gets to keep its best employee is not up for debate. The best employees must be paid well to keep them on the job. Organisations know that the best employees can help make more than enough for themselves and the organisation. However, the importance of money has resulted in the carrot and stick mind-set that has been used by employers for centuries. Employees are given targets and when they meet these targets, they are rewarded with promotions and increased bonuses. This is to keep employees always satisfied on the job. If only things were that easy.


If increased salaries were the all in all, then it stands to reason that there would not be issues of lack of employee engagement in many organisations around the world. The truth is that, although salaries keep increasing year by year, employee satisfaction and, ultimately, engagement, is not necessarily increasing at the same rate.

Studies after studies show that, beyond a certain point, there are diminishing returns for every quantum increase in employees’ monetary compensations.

Ragan’s Communications, a US-based leading publisher of corporate communications newsletters, conducted an online survey involving 2,764 respondents in 2012. The results were emphatic that,in spite of the fact that respondents’ salaries had increased from between 2 percent to 10 percent over the previous year, employees were still interested in more than just salary increments.

Another interesting survey was conducted by the world-famous Gallup Inc, sometime in August 2013 and the results were released in December of that same year. More than 1,000 employees, aged 18 years and older, were randomly selected and divided into three groups—the actively disengaged, the not engaged and the engaged. These individuals were asked if they would still stay with their present employers if they won a US$10 million lottery prize.

From among the list of “engaged” employees, i.e. employees who were more than satisfied with their present jobs, 63 percent said they would continue with their present jobs. 12 percent said they would take a different job and 25 percent said they would stop working. This gives a clear indication that people come to work not only for the money.  There is something more that keeps employees satisfied on the job.

The 2013 SoDA report from the Society of Digital Agencies, a membership body that spans over 30 countries across 6 continents, revealed some interesting facts. According to the 238-page report, salary places fifth in the list of important factors that determine an employee’s happiness on the job. The factors that were regarded as much more important than salary were the following: Interesting work, Organisational Culture, Good work-life balance and strong leadership/dynamic vision.

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Photo Credit: Insightlink

A June 2015 blog post by a team from Glassdoor Economic Research explored the relations between higher salaries and employee satisfaction. According to Mario Nuñez, a senior data scientist at Glassdoor and author of the report, the results obtained originally indicated that higher pay was associated with higher employee satisfaction. However, further analysis of the data involving a sample of more than 200,000 individuals revealed that “a 10 percent increase in employee pay is associated with only a 1 point increase in overall company satisfaction on a 0-100 scale, controlling for all other factors.” The report also revealed that there was “diminishing return to happiness for every extra $1,000 in earnings.” In other words, a higher salary just makes you a “little happier.”

Of all the reports I have come across regarding employee satisfaction and salary, I believe the most comprehensive was the one conducted by the Boston Consulting Group (BCG) in 2014. The study ranked twenty-six (26) factors that affected employees’ happiness on the job. These factors included things like good relationships with superiors, good work-life balance, having access to a company car, flexible work models, family support programs, learning and career development, the company’s financial stability, job security, attractive fixed salary, good relationships with colleagues, company values, interesting job content and many others. Surprisingly, none of these factors were placed as the most important to determine happiness on the job.

The number one factor that determines happiness of employees, according to the BCG 2014 report, was found to be appreciation for work done. People were happier if their work was appreciated than having an attractive fixed salary and additional benefits. An attractive fixed salary did not even make the Top 5. It was rated as the 8th important factor, lagging behind factors such as good relationships with colleagues, good work-life balance and good relationships with superiors. In short, employees regard the intrinsic rewards they obtain from the job better than the hard cash they take home at the end of the month.

What these studies reveal is that if all a manager has to motivate employees are monetary rewards, then there is a problem. Rewards and recognition must be of the right mix if they are to have any impact at all. Financial incentives must go together with the other equally important factors that determine employee satisfaction. Among the reasons that employees give for being satisfied on the job include the relationship they have with an immediate boss. Employees who feel the boss cares for them as individuals and not just as employees tend to be more satisfied on the job.

Another reason that accounts for the satisfaction of employees is when these workers feel their voices are heard and their views considered in the running of the organisation. Employees appreciate it if they are given more autonomy and power in making decisions about the things that are important to them such as how work should be done.

The respondents in the Ragan Communications online survey listed, among other things, an opportunity to work flexible working hours as something that would make them happier on the job. In this day and age of technological advancement, the resources are available for employees not to always come into the office to work from sunrise to sunset. People want to be able to telecommute or work from remote areas. Any organisation that is able to pull that off for some employees would have a squad of very satisfied employees.

The same respondents also listed a challenging job as equally important to a good salary. A job that tasks the individual was seen as more satisfying than “getting saddled with endless administrative tasks.” No matter how well people are paid, they still want to use their brains in ways that will bring them fulfilment. A research report released in 2013 by the Society for Human Resource Management (SHRM) revealed that one factor that contributed more significantly to job satisfaction than salary or wages was “opportunities to use skills/abilities.” The rewards people get from knowing that they have done something challenging is something money cannot buy.

It is said that when all you have in your tool bag is a hammer, you tend to see every problem as a nail. Too many managers, supervisors and business owners have fallen too much on wages and salaries as a means of keeping employees happy. This is because there is a belief that workers come to work for money. But the evidence is to the contrary. Organisations must consider other equally, if not more important, factors that would keep their employees happy on the job. This is important because a happy employee makes for a happy customer; and the happier the customer, the happier the entire organisation.


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