Strong Leadership Required to Overcome Innate Aversion to Differentiated Pay
It’s snack time for two female Capuchin monkeys. Hand a rock to the researcher and get a slice of cucumber. Everything is fine when rewards are identical.
What happens when one monkey gets a cucumber slice and her partner gets a grape?
A monkey reacts with anger when she realizes she received a cucumber slice when her partner received a grape. In Frans de Waal’s famous experiment, the monkey getting the short end of the stick got so angry she shook her cage and hurled cucumber slices.
Psychologists call this reaction “disadvantageous-inequity eversion”. This instinctual aversion to getting less than others is found in chimpanzees, dogs, birds and of course people. Another experiment found that babies as young as 12 months prefer fair-minded cartoon animals to unfair ones.
What are the implications of peoples’ innate aversion to unequal rewards on how employees are paid?
One conclusion could be that everyone performing a similar job should receive an identical salary.
What’s wrong with the conclusion that equal is always fair?
According to Harvard Business Review, top performers can deliver 400% more productivity than average performers and top performers know how much more they are doing than average performers.
An international study by Oxford Economics found that the most important contributors to employee job satisfaction are base salary and bonus. Top performers cared significantly more about both these factors than average performers. Identical salaries or tenure-based pay with little differentiation between top performers and low performers are likely to alienate top performers.
What are the consequences of getting it wrong?
We all know there is a risk of dividing your employees into high performers, average performers, and low performers for pay purposes. This can lead to resentment, undermine collaboration, and lower productivity. Legitimate concerns about gender bias and race inequality make it more important than ever before to get this right.
Since differentiated pay is so important to retain top performers, how can we keep average and below average performers from getting angry given the innate aversion to unequal rewards?
Three steps to help people accept differentiated pay:
Define clear performance expectations about both the quantity and quality of work to be completed and what your organization values most in terms of how things get done.
Ensure leaders have frequent one-on-ones with direct reports focusing on performance feedback, professional growth, and career planning.
Hold leaders accountable for consistent execution, no excuses. This includes special recognition for leaders who can help talent at all performance levels be the best they can be.
Great leaders define clear performance expectations, provide frequent feedback, and enthusiastically support direct reports’ personal and professional growth. Top performers expect to be recognized for exceptional performance and people have an innate aversion to unequal rewards.
Prepare for flying cucumbers if your leaders fail to get this right!