Why Are We So Caught up Over the Living Wage?

This week the Chancellor’s Autumn Statement was given and while there was relatively little from an employment point of view (National Insurance on young apprentices to be abolished and personal tax allowance to increase to £10,600 next April) there were a number of other interesting details, the main offering being the changes to stamp duty. Ever since then, the various economic and financial experts have been in full flow debating whether it’s good, bad or indifferent.

Money matters, that’s clear, so my thoughts have turned to the Living Wage. The Living Wage has been the subject of considerable debate recently. The Chancellor’s Autumn Statement has said that wages are unlikely to reach pre-crisis levels until 2019/20. It’s interesting that some of the organisations who require their suppliers to offer the living wage are often the ones who cut margins to the bone for their customers. For example, having worked with a number of private care companies whose biggest client is a local authority, I’ve seen that there is no scope to pay anything other than national minimum wage or they’d simply be working at a loss. If they had to pay the Living Wage as a condition of supply, they would no longer be able to supply services to the public sector. Those calling for the Living Wage, who tend to be politicians and individuals heavily involved in the public sector, should reassess what impact their own actions are having on the ability to pay higher wages before trying to win political capital out of the issue.

Having a sufficient level of pay to meet minimum needs and requirements is important and a failure to achieve that will be demotivating; but in most cases having more money does not motivate more (or if it does it’s a short term benefit). In 2010 researchers carried out a detailed analysis into the question of how much employees are engaged by remuneration (1). The results suggested that the link between salary and job satisfaction is very weak (less than 2% overlap between pay and job satisfaction levels). The report also found that the correlation between pay satisfaction and remuneration was hardly any higher (4.8% overlap), indicating that employee satisfaction with their package is largely independent of their actual salary.

There are clear variations in individuals’ approach to pay, and that means that it is valued and weighted differently by different people. For me having money means freedom. For you it might mean having power, success, being able to provide for a family, or having more material possessions. If employers are seeking to motivate their staff, they have to understand what their employees really value. They can’t take a one size fits all approach. Different values are linked to employee engagement. For example, there is evidence that a salary goal based on acquiring power is less rewarding than a salary goal based on the gaining of security and family leisure time.

Studies show that personality is a much better predictor of engagement in the workplace than the level of salary (2). In one research study involving data provided by 25,000 participants, personality determined 40% of the variability in ratings of job satisfaction. The study showed that employees who are stable emotionally, conscientious and outgoing are, more likely to enjoy their jobs (irrespective of their salaries).

But the clearest de-motivator by some distance was the leadership style. Incompetent leadership switches employees off. Whether employees want clear direction or freedom to act, a leader must recognise these as true, long-term motivators. Poor performance of a team reflects badly on everyone, even if it is just the leader who is really at fault.

  • (1) The relationship between pay and job satisfaction: A meta-analysis of the literature Timothy A. Judge, Ronald F. Piccolo, Nathan P. Podsakoff, John C. Shaw, Bruce L. Rich
  • (2) Five Factor Model of Personality and Job Satisfaction: A Meta-Analysis Timothy A. Judge, University of Florida, Daniel Heller and Michael K. Mount, University of Iowa

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