How Money Can Buy You Happiness

Today’s post has ramifications on executive compensation, employee base pay theory, and the value of recognition for employee satisfaction and happiness. As you can see, I only like to tackle the large challenges – especially when you recall that compensation philosophies (at any level) are not my area of expertise.

Yet Jim Brennan, a fellow Compensation Café colleague, pointed out this article to the Café klatch, and I couldn’t resist calling “dibs” to write about it. It seems, according to the economists cited in the article, money can buy you happiness. Check out the article for the two graphs showing first, by country, that richer households experience more life satisfaction and second, by households within countries, that more money means happier countries. 

So what does this boil down to? As a country, though US households make more money (and this, in fact, has doubled in size since the 1970s), overall well-being is lower. The article concludes:

“That's not a reason to stop reaching for policies that grow the pie. But it might be a reason to consider better policies to divide it so that more reaches the poorest families.”

I’ll go the extra step the article does not – achieving more of a balance between executive compensation and employee pay. The Swiss passed the strongest “say on pay” legislation yet (though average Swiss employees are also among the highest compensated). The research is a good reminder that pay matters. Regular readers of my posts may be surprised to hear me say that as I usually fall hard on the side of the importance of employee recognition vs. cash bonuses, but don’t misunderstand me. Until base pay is right, fair and appropriate, then it doesn’t matter how much you praise and appreciate employees.

Then just yesterday I saw this article on how money can, indeed, buy happiness. It all depends on how you spend your money with research showing, “We find that people are happier when they spend money on others rather than on themselves.” The author also points out, “Give your time to someone else and you will elevate your level of overall happiness.” These have ramifications directly on employee recognition, which is my area of expertise.

Based on these two articles, I offer three lessons:

1) Compensate people appropriately and fairly, with no single person or band of employees (regardless of rank) earning exponentially more than is relevant to the role or function. In other words, realize that all employees, pulling together, move the ship forward, and should be relevantly compensated for doing so.

2) For many people, their pay cheque is already fully allocated for the daily expenses of life, long before they ever receive it. Rewards and bonuses often offer the most acceptable reason to splurge. When recognizing and rewarding employees for great work or performance, do so in a way that makes it easy for them to use their rewards for others. I’ve heard countless stories of team members redeeming rewards for the benefit of family members (a ballerina outfit for their daughter, a vacation experience for everyone) and not just for something they can individually enjoy.

3) Don’t forget the importance of time. We are all very busy. Our peers as well as those we manage know how busy we are. If we choose to take time from our busy schedules to help them; to answer questions when asked; to pause, notice their good work and recognize them for it, then that can be a tremendous boost to employee happiness in itself.

Can money buy you happiness?

As Globoforce’s Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the  world. His articles on fostering and managing a culture of appreciation  through strategic recognition have been published in Businessweek,  Workspan and HR Management. Derek splits his time between Dublin and  Boston. Follow Derek on Twitter at @DerekIrvine.

Comments

[E. James (Jim) Brennan]

Nice combination of old and new research articles, Derek. You correctly identify that once the hygiene level of cash motivation has been achieved, other more "social" elements come into play as more effective behavioral reinforcement drivers.

One of the greatest self-limiting characteristics of money as a reward tool is the social unacceptability of bragging about cash earnings. It is considered rude, boorish and impolite to crow about a big bonus, for example, even in the US, where such egoism is more acceptable than anywhere else. But if the company awarded your family a few days at Disneyland as the prize for some great achievement, THAT is considered perfectly proper and can be openly shared without fear of recrimination.

The part in the new research about how money is less effective in the US than in any other country is quite fascinating. Many theories could explain that. Perhaps foreign cultures are more class-conscious, and cash is the entry ticket for greater acceptability, where the US eschews such obvious class distinctions based on money alone. Or it could be many other things...