Lack of Salary Growth and Employee Productivity

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Table of Contents

Introduction
Inflation and Nonfinancial Motivation of Employees
The Theory of Equity and the Experience of Other Countries
References

Introduction

Dissatisfaction with the amount of monetary compensation tops the ratings of reasons for disloyalty to the employer and dissatisfaction with working conditions and is a reason for low efficiency at work. If employees are paid below-market wages substantially, an increase in wages can boost motivation and productivity – the higher the wage, the greater the results expected of workers. In addition, an entrepreneur who decides to raise wages will achieve at least a commensurate improvement in performance. However, increasing an employee’s salary without expanding his or her function and moving up the career ladder does not affect productivity. It only leads to increased loyalty so that the employees think less about changing employers and values their place of work. The company essentially buys the employee’s loyalty, but once the rewards are over, people revert to their usual pattern of behavior.

Inflation and Nonfinancial Motivation of Employees

It is important for employees to understand that they should not expect a salary increase. The salary market is now quite stable, and employers are in no hurry to part with the money, do not create a precedent, except for exclusive employees. However, it is clear that if the rate of inflation is high, a three percent wage increase will be perceived by the employee as mockery, so the economic situation must also be taken into account. Many companies are actively developing a trend towards the nonfinancial motivation of employees (Martoccio, 2017). It is possible to motivate an employee to be involved in the work process without directly increasing the salary. However, for the vast majority of employees, the material component is still the key, which cannot be ignored (Bawa, 2017). Nevertheless, it is also obvious that relationships with the immediate supervisor, recognition of merits and opportunities for career growth within the company, professional development, and training also contribute to employee involvement.

The Theory of Equity and the Experience of Other Countries

In many countries, wage indexation is mandatory – for example, in Italy, the frequency of wage revisions depends directly on the increase in the price of a market basket. In practice, the issue of employee income is often the sole concern of the employees themselves. However, according to equity theory, employees are entitled to fair pay, and it is the employee’s responsibility to guarantee this right (Martoccio, 2017). Failure to increase salary can be compensated by bonuses, the amount of which can vary and even exceed the amount of the basic part. Nevertheless, it is important to remember that salary increases affect the attraction of new employees and the retention of existing employees, not their productivity (Nguyen et al., 2020). However, as employees’ experience and merit grow, increasing their salary by a certain percentage becomes necessary.

References

Bawa, M. (2017). Employee motivation and productivity: A review of literature and implications for management practice. International Journal of Commerce and Management, 5(12), 662-673.

Martoccio, J. J. (2017). Strategic compensation: A human resource management approach. Pearson.

Nguyen, H. H., Nguyen, T. T., & Nguyen, P. T. (2020). Factors affecting employee loyalty: A case of small and medium enterprises in Tra Vinh Province, Vietnam. The Journal of Asian Finance, Economics and Business, 7(1), 153–158. Web.

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Lack of Salary Growth and Employee Productivity

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