Pay Increase or Employee Satisfaction?

It can be easy to assume that more pay equals greater employee satisfaction. After all, money stress is one of the biggest emotional problems that most people face on a regular basis. That's one of the reasons that companies have traditionally offered performance-based pay rewards as the primary way to motivate greater productivity in the work place. 

Unfortunately, the problem is much more complicated. Offering raises is relatively easy, but it won't fix underlying structural problems. Keeping employees happy is a more complex situation that requires more than just throwing money at the problem. While it may cost more time and energy to keep employees happy at work, investing in satisfaction often offers greater rewards than simply boosting pay.

Employee Engagement

When employees lack passion and engagement with the work and the environment in which they perform that work, satisfaction tends to go down. By providing your workers with ways to feel like their work matters, you improve their engagement and overall satisfaction. 

This may involve surveying satisfaction, providing an opportunity for and responding to open-ended comments, providing information about how employee work affects the big picture, and increasing transparency. Make an effort to recognize employee contribution to the organization or company. Getting recognition for their efforts can make an enormous difference in employee loyalty and morale, but feeling ignored can do a lot of damage.

Training and Support

When employers want to save money, they often cut training and support budgets. This can make employees feel isolated and ignored. Make sure that you provide effective training to increase job confidence. This may include a mentoring program, employer-sponsored training, and other efforts. 

A supportive environment is just as important; when employees feel that they lack support from management or other workers, they are much more likely to complain about wages or look for other work. Focus training efforts on management as well as other employees, and make an effort to retrain bad managers or remove them from your organization. Ensure that employees have access to the resources they need, such as an effective IT department, to make daily job duties as efficient as possible.

Problem Sources

Simply relying on employee surveys and other superficial information may not be enough to ferret out legitimate problems. This is because workers may not be able to identify the true source of their issues right away. Many complain about a lack of pay when benefits, ineffective procedures, a poor connection with management, or other intangibles are actually the source of discontent. Instead of simply applying the bandage of extra pay, take some time to look for the real root of the problem when employees seem unhappy.

Pay Increase Management

Intangible problems such as budget cuts to important support services aren't the only factor in keeping employees happy, of course. Pay is a legitimate factor, but the amount may not actually be the problem. Many organizations that have trouble with employee pay satisfaction actually have a poor system of administering pay increases and ensuring fairness. Examine your system of providing raises and standardize it if necessary. 

Analyze how employee pay rates differ within your organization and make sure that those differences are based on factors such as education, performance and skills, not race, gender, office popularity or aggression. Employees usually feel much more content with their pay rates when they know they're being rewarded according to their skills and effort, not favoritism or discrimination.

Following the Competition

In a competitive industry, it can be tempting to use market information or the latest studies to make indiscriminate changes to your system, structure or methods. This can be disastrous for employee morale, however. Even if you're raising salaries to match the industry standard, it's unwise to do so without researching what that means for your company budget, how it will affect relationships between workers, and other company-specific factors. 

When you're altering other factors, such as your company's computer system, customer service standards, or organizational structure, matching your competition is far less important than making sure the decision works for your company. It may look like radical methods used by other companies could boost your productivity and morale, but large, unexplained changes can cause big problems, even if they result in higher pay.


It's impossible to maintain employee satisfaction levels without good intra-company communication, even if your workers enjoy the highest pay rates in the industry. Employees lose morale when they don't feel as though they know how their salaries are being determined, what factors affect their bonuses and yearly reviews, or which methods can be used to communicate to management. When workers don't have information, they tend to fill in the blanks for themselves. This can lead to inaccurate perceptions and extremely poor satisfaction levels.

The Bottom Line

It's no secret that well-paid employees tend to be happy employees, but this situation can only persist when those people work in a stable, supportive environment with clear lines of communication. When these factors are in place, employee salaries matter much less and companies frequently enjoy profits up to 8 percent higher than average, according to repeated surveys of employee happiness performed by Fortune magazine. 

This makes nurturing overall employee satisfaction a much better strategy than simply using financial rewards. While good pay is certainly a factor in worker performance and retention, organizations do better and keep their experienced employees longer when those people are happier and more engaged in the workplace.


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