When does pay become a demotivator, and when does it become a motivator? Studies presented by Daniel Pink in his book Drive shows that pay works as a motivator if the tasks are monotonous and mechanical. More advanced tasks are on the other hand performed worse if given a larger monetary reward. For these jobs salaries should be high enough to not be “an issue”, according to Pink.
This is all well and good, but I’ve seen pay cause people to become demotivated because they perceive that they’re being compensated badly in comparison to others. The fact that they’re far from restricted in their lifes doesn’t many any difference - what Pink is arguing simply doesn’t apply.
Even if you’re feeling that you’re working on something with a worthwhile and purposeful goal, having time to innovate and learn continuously, pay is still a potentially demotivating factor. (I’d love to add inclusion to these three motivators as Meri Williams argues. Relationships at work are extremely important for most people, especially after a few years.)
Knowing that less “productive” employees get higher compensation than you, even only by 5%, and that the company is in its power to correct this, my experience is that it make some people feel that the company doesn’t value them as much as other employees.
Of course, there are more reasons to why you’d believe that you are compensated unfairly - it could be that management simply doesn’t perceive you the same way you do. If you believe that this is because your manager simply doesn’t have insight into what you’re doing, then the feedback cycle needs to be fixed.
Another reason is that you entered the company on a relatively low pay level. Some companise try to have higher relative increases for these employees to help them catch up eventually. This can however take many years. There might be company policies causing the employee to become “salary blocked” since the employee can’t catch up fast enough without quitting and rejoining the company.