Thought Leadership in Action

Looking for a novel way to motivate employees to do their very best? A new study by three Harvard Business School researchers suggests you might want to try this surprising strategy: Give new workers a raise soon after you hire them.

While there’s nothing new about the belief that increasing an employee's salary should correspondingly boost his or her zeal to work harder and do a good job, the Harvard research concludes that money motivates better under certain conditions – and the findings challenge the assumption that paying more money inevitably leads to increased effort.

"Previous research has shown that paying people more than they expect may elicit reciprocity in the form of greater productivity," Deepak Malhotra, a Harvard business-administration professor who worked on the study, explained in a media statement. However, Malhotra and his colleagues found that the connection between more pay and extra effort depended on presenting the increase as a gift, that is, as something the employer decided to do simply as a nice gesture, without any strings attached.

Studying “Surprise” Raises

"Do employees work harder when they are paid more?" Malhotra and Harvard Business School colleagues Duncan Gilchrist and Michael Luca set out to answer this question with a field study involving 266 people hired by oDesk, (a global online network that connects freelancers with employers) to perform a one-time data entry project for 4 hours.

All of the research subjects were new hires living in developing countries where hourly wages of $3 and $4 were higher than they had been paid in previous jobs. The research team divided the workers into 3 groups. One group was told they would be paid $3 an hour. The second group was initially hired at $3 an hour also. However, before they even started working on the data entry project, these workers were in for a surprise, they were told the budget for the project had been unexpectedly increased and they would now receive $4 an hour. The last group was offered $4 an hour from the start and given no additional increase per hour.

Obviously, the workers in the second and third groups were ultimately paid the exact same amount. But that didn’t mean they worked the same. The researchers found that employees in the second group worked harder and produced about 20% more than their counterparts in the other groups.

What’s more, the workers in the second group that received the surprise raise also showed the most stamina, were able to remain focused the best on their assigned tasks and continued to perform exceptionally and consistently well even at the end of their four hour long assignment. Those in the highest performing group who did the very best jobs of all turned out to be those who were the most experienced. The Harvard researchers chalked this up to the fact that the employees with more prior work experience appreciated their unexpected raise the most because they knew how rare unexpected raises are in the workplace.

Motivating with the Human Factor

Malhotra and his research team found that higher pay, per se, didn’t boost productivity. However, there was something about the feeling the “raise” was a gift that seemed to ramp up the workers’ motivation, but why?

In their study, the Harvard researchers cited previous research based in behavioral economics that shows people care about fairness and these fairness considerations may create incentives for reciprocation. So, if an employer appears to give a gift (i.e. an unexpected raise) to a worker, that employee will tend to reciprocate out of a sense of fairness.

Bottom line: Malhotra’s research team believes companies need to take into consideration what factors other than money (such as recognition, respect and autonomy) can be powerful motivators of behaviors in the workplace. "The key is to understand you are dealing with human beings who work hard not simply because of financial incentives, but because of a whole host of other factors," Malhotra said in a media statement. "Think carefully not just about what to pay employees, but also how to pay them."

Based on their recent study, the Harvard Business School researchers stated that productivity is most likely to be boosted if it is made clear to new hires that a pay raise is something employers are choosing to do because they can. "Our theory is that people will reciprocate. If you do something nice, they'll do something nice back," Malhotra said.