Don’t expect a parade if you start paying a $15 per hour minimum wage.
7 min read
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Recently, Amazon announced it had upped the minimum wage for all U.S. employees to $15 per hour and was taking similar actions in other parts of the world. Many, like me, applauded Amazon for the move. Once again, the online shopping giant has taken steps to align the employee experience to its desired business results. Good for them. But is this strategy good for you, too?
Some are quick to criticize, calling it a shrewd business move that was necessary in anticipation of a tough 2018 holiday season hiring period. Others claim that offsetting the raise was a decrease in eligibility for the company’s Restricted Stock Unit program. This would result in little, if any, increase for some employees.
Was this increase an attempt to fend off unionization, as some have proclaimed? Was it simply a maneuver to position them for the upcoming seasonal hiring frenzy? Or was it an attempt to engage employees and “buy their loyalty,” for the time being, at least.
Amazon is smart enough to understand a wage increase doesn’t buy employee loyalty or engagement. But, others following Amazon’s lead may not be so wise when it comes to people practices. Regardless of where you fall on the minimum wage debate, it brings up some psychological principles that you may want to pay attention to when making these kinds of changes.
The adaptation principle.
Let’s step away from the generous pay raise my Amazon friends just received and look at perks in general. These perks could be stock options, pay raises, company night out at a Chuck E. Cheese knockoff — the list goes on. So, let’s suppose my company announces that every Tuesday at 12:15 pm they will serve all employees a Mexican lunch of tacos and salsa. I’m in! I have been given something that, at least for now, I value. My waistline and I quickly become accustomed to having Taco Tuesdays at the office, and I appreciate it.
So, what’s the problem? Well, there are actually a couple, and they apply to pay raises. Stay with me.
First, if you ever take Taco Tuesday away, I will start a rebellion, even though it is a nice perk the company offers me. The culinary Mexican fiesta-palooza has become an entitlement. I have a right to my weekly feast. Just try to pry them out of my hands, company! But I don’t behave any differently because the company has provided me with a Tuesday treat. I have adapted.
This is known as the adaptation principle. This is the concept that we reset levels of satisfaction by quickly adapting to situations until they become the norm. That’s the danger of perquisites; it’s going to take the addition of Fajita Fridays for me to get excited again. And, eventually, I’ll adapt to the Friday Feast as well.
So, while a temporary bump in wages is a great gesture, employees will quickly adjust, and with it, the goodwill fades all too quickly.
The notion of the adaptation principle is highlighted in a classic psychological study involving lottery winners, a control group and accident victims. The researchers observed 22 lottery winners, 29 paralyzed accident victims and 22 control group participants (those who neither won the lottery nor were involved in a serious accident), asking them to rate their levels of happiness both before and after these life-changing events. To nobody’s surprise, the lottery winners rated winning as a highly positive event, while the paraplegic victims rated their accident as a highly negative event.
The findings were very interesting. Lottery winners and the control group showed no significant differences in their ratings as to how happy they were at present, how happy they were before winning the lottery, or how happy they anticipated being in the future.
Accident victims and those in the control group were significantly different in their ratings of present happiness. However, there was no significant difference between these groups in terms of their anticipated future happiness.
The fact is that while employees may find short-term satisfaction in a raise, free lunch, a bonus or Taco Tuesdays, that will soon become the new baseline, and employees will adapt to that new reality. These factors now become the new standard; we adapt to the current status. These new factors don’t create engagement when we become accustomed to or adapt to them. But, take them away and dissatisfaction is the result.
All are created (but not compensated) equal.
Amazon certainly isn’t the first company of note that has raised the minimum wage of its employees, followed by fanfare. Even these positive changes can disrupt in negative ways. At Gravity Payments, Wal-Mart and other companies gaining publicity for raising minimum wages, employees have quit after across-the-board raises were announced. Why? Blame equity theory.
Equity theory is about perceived justice and fairness. It suggests that employees evaluate the equity between their inputs (the work they do) and the outcomes they receive for that work (their reward) against the perceived inputs and outcomes of others. An employee will make a comparison by looking at her contributions and what she receives in return and weigh that ratio against what she perceives to be the contributions and returns of her coworkers. When she finds those relationships to be unequal — for example, when she perceives that she is working harder than her coworker for equal or less pay — she may become demotivated.
So, what happened at Walmart and Gravity when the wage increase was announced? Employees left. Some left in anticipation that their paid workweek would be shortened in order to compensate for the raises. But others felt that they were no longer paid a premium (over their counterparts) for their longevity, tenure and dedication to their employer. It was no longer equitable, at least in their minds. Others left because they felt their employers’ moves were not enough, adding insult to injury when it came to assigning a dollar value to contribution.
Did Amazon make a mistake (and will you)?
Does that mean Amazon blew it? It might not be wise to point an accusing finger at a company that is trying to take care of their employees, for whatever reason. Amazon’s move will benefit a number of its hard-working employees. But, keep in mind the fact that perks don’t buy loyalty and engagement.
Amazon understands this concept. But a warning goes out to those attempting to follow in Amazon’s footsteps with hopes for a rise in employee satisfaction; it may not generate the return you are hoping for, particular if the expectation is for increased employee engagement. And it may cost a lot of money to learn that lesson.