Have you ever wonder if your employee would work harder if they are being paid more? Previous research has shown that paying people more than they expect may elicit reciprocity in the form of greater effort or productivity. In a more recent field study done by Duncan Gilchrist, Michael Luca, and Deepak Malhotra from Harvard Business School, they found that people are working more productively when they get paid higher than they usually do, but ONLY when it is presented as a gift. 

"$3 + $1 is more than $4"

The participants were divided into few groups and all the participants were people who work and get paid less than $3 previously. The findings from the study found that people who were promised $4 worked no harder than those promised with $3. Malhotra said that even though it is more than they are used to making or expecting, there may be no reason for them to interpret this as a gift or concession from the employer. More likely, they just assume that their expectations were wrong, and $4 is 'the going rate' for this type of work. So paying more elicited about the same employee effort as the lesser rate.

Another group that were promised $3 but then later were given an additional $1 worked significantly harder than the other two groups. Malhotra further explained that we attribute this to the salience of the gift: It was obvious to the participants that they didn't have to give this additional compensation, but that they had chosen to. "The gift " signaled that the participants had done something nice for them which they may want to reciprocate. And the participants did reciprocate, with higher productivity.

For real-world companies, the findings suggested that companies should think carefully not just about what to pay employees, but also how to pay them. The same amount of compensation can be structured in ways that will be more or less appreciated and reciprocated.

Other factors to motivate employees

Malhotra also believes that companies need to consider what other factors motivate employees. He said there is a lot of work that shows non-monetary incentives (e.g., recognition, respect, autonomy, etc.) that could 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."

Source: Harvard Business School