Why Is Salary Important?

Salary is important in the most basic sense -- the vast majority of people wouldn't do their jobs if they weren't paid for it. Fair salary for the particular work required is also important. Two standard human psychology theories from Abraham Maslow and Frank Herzberg explain why salary is critical in keeping employees satisfied at work.

A number of factors enter into a company's determination of how to establish salaries and what to pay for certain positions. Two common pay structures are scheduled pay and market-based pay. Many public organizations, and an increasing number of private companies use schedule pay, which outlines specific pay for jobs based on employee education and experience. Market pay is based on the talents of the individual employee and how much the company is willing to pay to acquire them. Generally, more competitive pay attracts better talent.

Links between salary and motivation are often debated. Most experts agree that a reasonable salary for a given job is needed to attract and retain employees. Debate centers on whether salary serves only as a retention tool, or if it's useful in motivating top performance. Some companies use pay plays like salary-plus-commission, or straight commission, as motivational tools in lieu of a traditional straight-salary format.

Maslow's Hierarchy of Needs is a standard in human needs psychology. Maslow discussed five basic needs: Physiological, safety and security, social belonging, esteem and self-actualization. He also stated that only unmet needs are motivating. Thus, the lowest-order physiological needs are your top priority until they're met. This can include salary, since it's needed to buy food, clothing and shelter. Next, you need safety and security. Higher-order needs of esteem and self-actualization do correlate with salary, but more from the perspective that a high salary can serve to prompt a stronger sense of self-worth and accomplishment.

Herzberg's two-factor theory, based on a job attitude study of 200 accountants and engineers, generally validates Maslow, but consolidates five levels of needs into two more general categories of needs factors -- hygiene, or maintenance, and motivational. His hygiene factors virtually align with Maslow's lower order physiological and safety needs. The motivational factors align with Maslow's belonging, esteem and self-actualization. Herzberg said basic salary was important as a survival need because it protects against employee dissatisfaction. It could not, however, strongly motivate. He did note that recognition, promotional opportunities and self-worth are key motivators. Thus, if companies tie these factors to pay structure, they may have more ability to use salary to push for stronger performance.