Cornell Study Demonstrates How to Boost Employees' Performance

CORNELL STUDY SHOWS THAT IF YOU WANT TO BOOST EMPLOYEES' PERFORMANCE, IT'S NOT JUST HOW MUCH YOU PAY

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. October 14, 2008

ITHACA, NY, October 31, 2006. A study of the relationship between pay and performance finds that better pay can lead to better employee performance, but simply offering more money isn't the answer. Rather, how you pay your employees is critical when designing a successful compensation system, according to Michael Sturman, who conducted the study. Sturman, an associate professor at the Cornell University School of Hotel Administration, explains that he wanted to explore two related aspects of pay levels.

"I looked at both how much people are paid, and also how pay increases are given," he said. "I found that adding 1 percent to a raise pool will increase employees' future performance, but only by about 2 percent. But if you also change the way you pay, by changing the strength of the pay-for-performance relationship, you can improve performance by up to 19 percent."

The study, "Using Your Pay System to Improve Employees' Performance: How You Pay Makes a Difference," is available at no charge from the Cornell Center for Hospitality Research, at: http://www.hotelschool.cornell.edu/chr/research/centerreports.html.

Looking at the experience of a diversified services company, Sturman found that an across-the-board raise in one year meant better performance in the following year. Indeed, paying above the market meant higher performance. Aware of the expense of across-the-board raises, however, Sturman wanted to compare the results of raises and bonuses when pay was closely related to performance.

"I found that bonuses were a better pay-for-performance tool than were raises," Sturman said. "While both across-the-board raises and bonuses improved performance, bonuses stood out when pay was linked solidly to performance."

Sturman notes that since he studied only one company, large though it is, each employer should examine its own situation to create a payroll strategy. "The point is, pay methods can be used strategically to improve performance," Sturman concluded. "The payroll is not merely an expense to be reduced at all costs."

Meet and interact with Dr. Sturman, an active member of the executive education faculty at the School of Hotel Administration, when he presents a session in the General Managers Program (http://hotelschool.cornell.edu/execed/gmp).

About The Center for Hospitality Research

A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the Center's 51 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The Center also publishes the award-winning hospitality journal, the Cornell Hotel and Restaurant Administration Quarterly. To learn more about CHR and its projects, visit www.chr.cornell.edu.

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