ABSTRACT
Pay is, of course, the payoff for work done. Pay directly affects what individuals can do off the job, their family’s standard of living, the extent to which they can travel, and the leisure time activities in which they can indulge. Pay indirectly conveys to workers the value an organization places on them and the status they have achieved. When workers are paid less than they think they are worth, they are likely to reduce their efforts in order to restore a sense of equity in their relationship with the employer, a fact well demonstrated by psychologists in their studies of equity theory (Walster, Walster, & Berscheid, 1978). Conversely, there is evidence that paying workers bonuses based on organizational performance can markedly increase their effort and performance (Lawler, 1990). Pay can thus be a powerful motivator in encouraging many workers to higher performance and greater growth. Nevertheless, effective pay systems—satisfactory for the worker as well as productive for the employer—are more the exception than the rule.
