Paying people more can backfire

Everyone knows that pay for performance works, but it’s an extrinsic motivator.  That means there’s a point at which higher pay doesn’t track with higher performance; you get a plateau. 

Higher pay, poorer performance?

Paying people more than 20% over the median pay for their role might actually get you lower performance over time. 

Do what matters: pay people fairly.  Employees paid salaries between the 40th and 70th percentile of the market rate or higher (compa ratio of 0.9 to 1.2) stay a year longer.  But, keep things fair.  Employees paid more than the 70th percentile (compa ratio of 1.2 or higher) tend to plateau or even trend lower in performance over time.