All Reasons Why Firms Offer Above Average Salaries and Perks

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All Reasons Why Firms Offer Above Average Salaries and Perks

🔥 Employers get more if they pay more... Beyond the reasons for this already mentioned in the summary of Efficiency Wages, below I listed 10 key reasons for and effects of offering Efficiency Wages (above industry standard salaries/wages):
1. INCREASED WORK EFFORT: When workers are paid above the market wage, they often feel a sense of obligation and motivation to put in extra effort. This can result in increased productivity as employees strive to meet or exceed employer expectations.
2. HIGHER JOB SATISFACTION: Receiving higher wages than what is commonly available in the labor market can lead to greater job satisfaction among employees. Satisfied workers are generally more engaged and motivated to perform well.
3. LOWER TURNOVER: Efficiency wages are often used as a tool to reduce employee turnover. When workers are paid well, they are less likely to seek alternative employment opportunities, which stabilises the workforce and reduces the costs associated with hiring and training new employees.
4. ATTRACTION OF HIGH-QUALITY TALENT: Firms paying efficiency wages may attract a higher calibre of job applicants. Skilled and experienced workers may be drawn to companies offering better compensation packages, leading to a more talented and productive workforce.
5. REDUCED SHIRKING AND ABSENTEEISM: Employees receiving above-market wages have a stronger incentive to avoid shirking (slacking off) and absenteeism, as they do not want to jeopardise their well-paying jobs. This can result in better attendance and a reduction in unproductive behaviours.
6. IMPROVED EMPLOYEE HEALTH: Some studies suggest that higher wages can lead to improved overall health among workers. Healthier employees are often more productive and take fewer sick days.
7. ENHANCED TRAINING AND SKILL DEVELOPMENT: Firms paying efficiency wages may invest more in training and skill development for their employees. This investment can lead to a more skilled and adaptable workforce, contributing to increased productivity.
8. POSITIVE WORKPLACE CULTURE: A workplace that rewards employees with efficiency wages may foster a positive and cooperative culture. Workers may be more willing to collaborate and share knowledge, further enhancing productivity.
9. HIGHER OUTPUT AND QUALITY: The combination of motivated, satisfied, and skilled employees can result in higher levels of both output and product/service quality.
10. COMPETITIVE ADVANTAGE: Firms that effectively leverage efficiency wages can gain a competitive advantage in their industry. Their higher productivity levels and better-quality output can lead to increased market share and profitability.

⇨ Let's try to make this list as complete as possible - add a comment if you know of an additional reason.

Sources:
Carter S., "The Impact of Wages on Employee Productivity", Forbes, 2019, September, vol, pp. 9-13
Simpson O., "What is efficiency wage theory?", Perkbox, 2018, pp. 4-9.

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		1 Maurice Hogarth Consultant, United Kingdom
	Maybe But Moot "Workers"? Is this everyone in an organisation or some lower level group? I'm not sure about "pay more - get more"; the salaries and bonuses given to the CEOs of the water and other utility businesses in the UK would seem to contradict this to a very high degree. The first strike that I was involved with was based on "The pay we receive is for coming to work, if you want us to work pay us more." After a while this becomes the norm as the increased amount simply becomes the new come to work expectation level with an expectation that work requires a further increase. From my own experience: It is not unknown that people leave organisations and accept lower pay (be it wages or salaries) in other organisations or a different part of the organisation in order to gain other 'benefits'. So I would consider point 1 to be moot. I would not agree that higher than mode wages creates "Job Satisfaction" unless a radically different referent is being used than what I understand the term to relate to. The need for job satisfaction is a not-uncommon reason for people to accept a lower payment elsewhere (see above). I agree that higher wages will keep some people but the probability is that if their work is not satisfying then they will work at a minimum get by level. The payment of "bonuses" for ATTENDANCE only worked when this was on an "immediate" basis i.e. do I get out of bed and forgo the bonus to be paid at the end of the week? NO, I go to work. When paid on a 'delayed' basis the response to Do I get out of bed now or get a bonus in 3 months time? Here the answer was usually stay in bed. This didn't affect the amount or quality of work done. Etcetera. So, the reasons firms might PAY above the mode for an employee category may be relevant to some employees, but are not necessarily successful for all employees.

		1 Jaap de Jonge Editor, Netherlands
	Efficiency Wages in Economic versus Management Science The subject of Efficiency Wages is a nice example of the difference between Economics and Management science. What is right from an economic point of view (typically under the assumption of rationality, etc.) is not necessarily always true from a management point of view (where everyone is aware that people do not always act in a rational manner — neither individually, nor in teams, nor in entire organizations). Still I agree the points mentioned by Edward Nabulele are valid to some extent and quite useful. Even if they matter only to a part of the employees, that is already significant.

		1 mimozaallou Student (University), Algeria
	Paying More for Exceptional Workers @Maurice Hogarth: I agree with you, it's OK to pay more, but to workers who give added value to the firm.

		1 Maurice Hogarth Consultant, United Kingdom
	'A Fair Days Pay for a Fair Day's Work.' @mimozaallou: "A fair days pay for a fair day's work." A common cry, which allows for an exceptional payment to be made for an exceptional performance. In my experience wage/salary payments are arranged in bands against job types or categories and levels of competence within these. People, depending upon a range of criteria, will rise through their band. (N.B. John Harvey-Jones [Chairman of ICI] told me that he was paid less than his senior scientists due to the bands in the organisation's payment system being structured on a "value to the firm" basis.) The key issue for a performance based payment system relates to what is to be considered "exceptional performance". On the basis of wage-salary bands people's remunerations are based on their performance of the tasks, to the standard required, as described in their Job Description. If a person is performing above the level of their job description there is a case for this being rewarded, in someway. If this is a step up in their band, then that is "standard" within the system, not the paying an individual more outside of the system. Also, remember that that money is simply a token of recognition and that some individuals may prefer other forms of reward-recognition (e.g. Job Enlargement, increased Span of Discretion). But also, arguably, they may be in the wrong job. The "range of criteria", against which performance "value" will be assessed, however, needs to be carefully considered to ensure fairness. Assessment of a person's performance and the extent to which that performance is providing "added value" requires an effective performance appraisal process and competence in the role of performance appraiser. When people trust the assessment system, they are likely to trust the payments made as genuinely reflecting (their) exceptional work. The next (critical) question is to decide how to cope with disagreements over what a person considers their worth to be, if there is to be remuneration transparency.