When I started working on my undergraduate degree, one area I focused on was manpower management -- the study of how to manage and motivate people. A lot of work went into understanding what got employees up and focused and how to match people to the jobs they would most enjoy.
Unfortunately, one of the unintended consequences of the Equal Opportunity Employment Act was that it effectively killed much of this effort. As a result, HR basically became a compliance and resource management function. This speaks to why so many executives are pretty clueless when it comes to layoffs or compensation. They simply were never taught, nor were their HR specialists, the underlying science effectively became how to keep from getting sued.
What brought this all up was a question on Quora -- I'm sure we've all been there and are familiar with sentitment: "I like my job and boss a lot, but I am underpaid. I received an offer from a competing firm for 30 percent more. How should I use this to increase my current pay, given that I have no intention to quit and don't want to harm my current relationship with my manager?"
We've either been in this position, had someone who worked for us that has or will be in this position, and may put someone else in this position so I think it is important to understand the dynamics of money, productivity and happiness. This is something I'm sure most CEOs don't get otherwise they wouldn't look so shocked when they fail.
Money is a great demotivater
Two professors Frederick Hertzberg and Abraham Maslow did the definitive work on the impact of money in the 1960s. They found that money sucked as a motivator and was massively powerful as a demotivater. In addition, they found that if you put folks at financial risk you could pretty much shut them down.
What this means is that if I give you a $100 raise you probably won't do anything different. However, if I cut your income by $100 you're going to be pissed and you'll likely act out, steal from me, start looking for a new job, or otherwise become disgruntled. The more money I take the more annoying and unproductive you'll become, the more money I give you, well, pretty much zip.
Now all I have to do is make you think you are being cheated and you'll be increasingly unhappy. In the case of the question above, the person loves the job, loves the manager, but is upset because they believe they are being underpaid and are willing to put that all at risk to correct the problem.
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