Does money buy happiness? Philosophers have debated this question for centuries. But a better question for organizations might be “How does money buy happiness?” Regardless of how much any job pays, no organization benefits from stressed-out employees.
Money is not an end itself, of course, but if directed at the right outcomes, it provides people with more choices and more freedom. And those choices determine the quality of their lives.
The perception that you have more than enough money to do what you want to do has three times the impact of your income on your overall well-being.
Interdependence of the well-being elements
None of the well-being elements operates independently—especially financial well-being. Consider these findings: One study found that 45% of Americans report living “paycheck to paycheck.” Employees who are troubled by their finances are twice as likely to be in poor health as those who declare themselves financially “unworried.” They also report higher stress levels, more absences, and lower levels of engagement.
Employers should take this to heart. Although you may feel that you offer generous pay and benefits, your employees may be suffering from financial stress that is ultimately affecting their health and performance at work. Offering employees financial advice and resources not only supports engagement—it shows that you care about their well-being, demonstrated by our research.
- Gallup found that the amount of money someone will change jobs for depends on their engagement and career well-being. People will change jobs for increases in income, but their desire to move on isn’t entirely driven by money. Actively disengaged workers will change jobs for almost any raise, while the majority of engaged workers would require more than a 20% raise to leave their current company.
- Social and community well-being also affect financial well-being. The amount of social time people have on any given day improves their mood, regardless of their income level.
Once your basic needs are met, the best way to spend your money is to spend it on others, which has been shown to be nearly as important to your happiness as your income is. Giving generously to your community, combined with volunteering, is a powerful way to increase your community well-being.
The most-avoided manager conversation: Talking about pay
Behavioral economics has recently revealed that much of how people think about wealth is based on comparisons with others. The amount of money you make or the size of your home is less relevant than how they compare to the income and houses of other people.
Now consider the fact that employees are more likely to believe they are underpaid relative to their market value. A PayScale study of more than 71,000 employees found that when employees were paid above market value, 35% of them incorrectly believed that they were paid below market, 45% thought they were paid at market, and just 21% realized they were paid above market. In contrast, PayScale found that of employees who were paid at market, 64% believed they were paid below market, 30% accurately believed that they were paid at market, and 6% thought they were paid above market.
For this reason, you need to do more than simply pay employees at or above their market value. An open conversation about pay philosophies, policies, and methods for determining pay is even more important than the actual amount of their salary when it comes to helping employees feel satisfied with their compensation.
Therefore, it’s better to pay at market and have effective pay conversations than to pay above market but fail to align on those conversations. Here are some recommendations to ensure employees feel secure about their finances.
- Provide financial planning, tracking, investing, and savings resources and tools. Ask internal financial experts to advise your employees. These experts can help employees reduce short-term financial stress, increase long-term security, and use their financial resources to take care of basic needs.
- Train managers to have effective pay conversations with employees to improve perceptions of fairness. These are some of the hardest conversations managers have. Give them the tools, support, information, and education they need to set them up for success.
- Use team incentives. Consider how your incentive-based pay is aimed at team performance. Individual incentives can work too, but make sure you design them in a way that doesn’t increase financial insecurity and work against team goals.
- Encourage giving to the community. Promote financial giving that is tailored to fit each person’s passion and goals.
Finally, it’s crucial that organizations consider employee well-being in their overall compensation package. Gallup’s recent study of benefits indicates that they fall into three categories: basics that are must-haves to be competitive, such as health insurance, 401(k) plans, paid leave, and other insurance; benefits such as flexible working locations and monetary bonuses; and benefits that differentiate whether employees are engaged and have higher well-being, such as flextime and opportunities for professional development.
Including competitive benefits can increase employee well-being and put all considerations of money and compensation in context and perspective.
Adapted from Wellbeing at Work: How to Build Resilient and Thriving Teams, by Jim Clifton and Jim Harter, PhD. Copyright 2021 Gallup, Inc. Reprinted with permission from Gallup Press. All rights reserved.
Jim Clifton is the chairman and CEO of Gallup, a global leader in analytics and public opinion research headquartered in Washington, D.C. Clifton is the best-selling author of The Coming Jobs War and Born to Build, and the coauthor of It’s the Manager and Wellbeing at Work: How to Build Resilient and Thriving Teams.
Jim Harter, PhD, is the chief scientist of Workplace for Gallup. He is the best-selling author of 12: The Elements of Great Managing and Wellbeing: The Five Essential Elements, and the coauthor of It’s the Manager and Wellbeing at Work: How to Build Resilient and Thriving Teams.