Conventional wisdom has it that if you pay people more, they’ll work harder for you. Like most conventional wisdom, this one is rooted in fact and requires a “Yeah, but.”
So finds a recent study by Harvard colleagues Deepak Malhorta, Duncan Gilchrist and Michael Luca, which suggests that employees respond better to above-market compensation if it’s presented as an unexpected increase.
The study took a look at three groups of equal qualification who were hired to perform a one-time task for freelance marketplace oDesk. One of the groups was paid $3 per hour for the task and another was paid $4 per hour.
The third group, though, was hired to do the work for $3 and then told there was more room in the budget than had been expected, and they could pay them $4. The increased pay was presented, the study says, as “a surprise gift.”
The three groups were then each evaluated for productivity while doing the work. The first two groups produced similar results, even though one was paid a dollar more per hours. But the third group — the one that received the surprise pay — exhibited 20 percent higher productivity compared to the two other groups.
“We attribute this to the salience of the gift: It was obvious to them that we didn’t have to give this additional compensation, but that we had chosen to,” Malhouta tells the Harvard Gazette.
Malhouta tells the Gazette the study’s conclusions show that “$3 + $1 is more than $4.” Though the difference between $3 and $4 may seem small, the participants in the study had originally indicated they would work for less than $3 wages, meaning all three groups were paid beyond their initial expectations.
So what are the implications for the “3+1″ rule at your company? One application might be to list lower salaries on your job postings than you will ultimately offer upon making a hire. You might also find ways to use this principle when dishing out bonuses to your team by rewarding them with a bit more than your employees expected.