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Employee Pay in Social-Cause Organizations

By Clara Xiaoling Chen, Ph.D.; Heather L. Pesch, Ph.D., CPA; and Laura Wang, Ph.D.
August 1, 2020
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Companies with a social mission with employees who are paid less might actually experience higher employee performance and team cooperation.

 

Many organizations pursue a social cause as part of their core mission. In addition to not-for-profit organizations that typically have a social mission at their core, many for-profit organizations are embracing a social cause. It’s common for many of these social cause organizations to experience resource constraints that limit their ability to pay market wages. A recent research study suggests that this inability to pay employees full market wages might help an organization find higher-performing employees who are attracted to its social mission.

 

In our study, we hired individuals through a real online labor market and found that, for jobs at companies with a core social mission, employees who are willing to choose the social mission job despite below-market pay accepted the job in order to advance the social cause they cared so much about.

 

This, in turn, increased individual employee performance as well as team cooperation among employees. This is an important finding because it isn’t always easy to assess how much potential employees care about an organization’s core mission using the most common and accessible screening tools like preemployment surveys and/or personality tests.

 

ABOUT THE STUDY

 

For our first experiment, we asked all participants to choose between two jobs: one that advances a social mission and one that doesn’t. The job without a social mission paid the market wage.

 

For one group of participants, the social mission job paid above the market wage, so this group chose between a social mission job that paid above market and a nonsocial mission job that paid the market wage.

 

For a second group, the social mission job paid below the market wage, so this group chose between a social mission job that paid below market and a nonsocial mission job that paid the market wage.

 

Participants who selected the social mission job then worked on a letter-search task requiring much effort to earn donations for a charity.

 

COMPARING JOB PERFORMANCE

 

We compared the performance of those who selected the social mission job that paid below market in the first group to the performance of those who selected the social mission job that paid above market in the second group. Surprisingly, we found that those who selected the below-market social mission job actually performed better than those who selected the above-market social mission job.

 

This result was due to the fact that those who had selected the below-market social mission job cared significantly more about the job’s social mission than those who had selected the above-market social mission job.

 

Simply stated, an unintentional benefit of below-market pay for social mission organizations is enabling those organizations to hire a workforce that cares deeply about the organization’s social mission and, as a result, is intrinsically willing to work hard on the job to advance that social mission.

 

IMPROVING TEAM COOPERATION

 

In our second experiment, participants again selected between a nonsocial mission job that paid the market wage and a social mission job. This time, we divided participants into three groups in which the social mission job paid above the market wage, market wage, or below the market wage. Within each group, two participants who had selected the same job were paired up to work together on a team-based task.

 

In the team-based task, both partners simultaneously decided whether or not to cooperate. For the social mission job, cooperating benefited the job’s social mission but was costly to the individual participants.

 

The participants who had selected the below-market social mission job cooperated more effectively than participants who had selected either the above-market or at-market social mission job. This occurred because participants interpreted their partner’s willingness to accept below-market pay as a signal that their partner personally valued the job’s social mission, and, as a result, they expected their partner to cooperate on the team-based task that advanced the job’s social mission.

 

Surprisingly, we found that the beneficial effect of below-market pay on cooperation also extended to a second team-based task that didn’t directly contribute to a social mission.

 

For more information, check out the complete study in “Selection Effects of Below-Market Pay in Social-Mission Organizations: Effects on Individual Performance and Team Cooperation” (The Accounting Review, January 2020, pp. 57-77). As the study indicates, below-market pay for jobs with an embedded social mission can actually increase employee performance and cooperation because people most passionate about the organization’s social mission will be most willing to give up pay for the opportunity to advance a mission they deeply care about.

 

SOME LIMITATIONS

 

There can be disadvantages to offering low pay as a tactic to screen employees. For example, it will likely take longer to fill vacancies, it may attract lower-skilled candidates with fewer outside opportunities, and it may result in higher turnover. Furthermore, it’s important to remember that many employees don’t have the luxury to trade off pay for the opportunity to advance an important social cause—particularly those employees who spend each dollar they earn to satisfy basic needs.

 

Finally, we believe our findings apply to those organizations that have a social mission embedded in their day-to-day work rather than those organizations that tangentially pursue corporate social responsibility goals.

 

If your organization has a social mission at its core, you shouldn’t worry too much if resource constraints are limiting your ability to pay market wages—it might actually help you attract dedicated employees who are inclined to work hard and cooperate with their fellow employees to advance your organization’s mission.

 

This column is a collaboration between Strategic Finance and the Management Accounting Section (MAS) of the American Accounting Association (AAA). It describes recently published management accounting research studies from top academic journals and summarizes them for the benefit and use of practitioners.

 

Clara Xiaoling Chen, Ph.D., is the Lillian and Morrie Moss Distinguished Professor in Accountancy at the Gies College of Business at the University of Illinois at Urbana-Champaign. Clara can be reached at cxchen@illinois.edu.
Heather L. Pesch, Ph.D., CPA, is an assistant professor in the College of Business at Oregon State University. Heather can be reached at heather.pesch@oregonstate.edu.
Laura Wang, Ph.D., is an assistant professor and Fred and Virginia Roedgers Fellow in Accountancy at the Gies College of Business at the University of Illinois at Urbana-Champaign. Laura can be reached at lauraww@illinois.edu.
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