Employees' perception of pay increases

Abstract

Concepts and methods of psychophysics were adapted to a study of the relationship between the size of a pay increase and the subjective impressions it creates. Management personnel ( n = 109) were asked to assign cognitive labels to an ordered series of pay increases, and estimates of just meaningful differences (JMD) in pay were made for subjects grouped according to level of current salary. Contrary to predictions derived from Weber's Law, the JMD was a decreasing percentage of current pay. Regression analyses revealed that current salary, perceived equity of current salary and, in one instance, expectations regarding future promotions accounted for a significant portion of the individual differences in the size of the JMD. The use of the JMD as an index reflecting psychological sensitivity to changes in income is discussed.