Smallest meaningful pay increases : Field test, constructive replication, and extension

Abstract

The authors extend prior literature by examining, in two distinct field settings, smallest meaningful pay increases (SMPIs) in terms of magnitude, behavioral intention, and affective reactions. In Study 1, a two-wave study of 177 employees of a university medical center in the United States, the authors find stable thresholds of about 5.0 percent for positive reactions to pay increases (magnitude [5.4 percent], behavioral intentions [4.2 percent], and affective reactions [5.6 percent]). In Study 2, a sample of 495 university employees in Finland, the authors also find stable but slightly higher thresholds of about 8 percent for behavioral intentions (8.4 percent) and positive affective reactions (7.2 percent) to pay increases. They also find threshold effects of −5.7 percent for behavioral intentions and −5.8 percent for negative affective reactions in response to restricted future pay increases levied in the transition to a new pay system. Discussion of the results centers on pay raise administration and future research regarding implied and direct pay reductions.