Mind hack: Think of your pay in hourly terms, and money impacts your happiness more

For some time now, economists and psychologists have been learning a curious fact about money: The way that you’re paid — by the hour, or by an annual salary — affects your happiness a lot. In particular, if you’re paid by the hour, increases in pay are more likely to make you happy compared to people who are paid a salary.

Why would this be? One theory is that when you’re paid by the hour, you have a greater sense of the relationship between your time and your money. Increases in pay seem more significant, and each hour of work feels like money clinking into your piggy bank. (Or as one 2004 study of this stuff put it, being paid by the hour imbues you with “an accountant’s appreciation for the microeconomics of time.”) In contrast, people who are paid an annual wage don’t fine-slice their time that way, so they don’t “feel” money arriving with each hour of work.

But a recent experiment suggests it’s possible to make salaried employees feel more like hourly-waged ones. A pair of management professors took 164 people and divided them into two groups: The ones who were paid by the hour and the ones who were paid by a salary. As they suspected, the ones paid by salary didn’t index their happiness to their income as tightly as those hourly-waged ones did.

Then the professors did a mental “priming” exercise: They asked the annual-salary folks to take their annual salary, and calculate what it equals in hourly pay. After doing that bit of math, the professors repeated the psychological assessment and presto: The annual-salaried folks changed. They suddenly responded the same way as the hourly-paid ones, and income now similarly affected their sense of happiness.

The effect was only temporary; it ends when the priming wears off. But it suggests that if a company wanted its employees to respond to financial incentives more strongly, it should figure out some way to regularly prime them to think of the salaries in hourly terms. As the professors put it in their paper — “When is Happiness About How Much You Earn? The Effect of Hourly Payment on the Money-Happiness Connection” — published in the current issue of Personality and Social Psychology Bulletin:

… organizational practices that make the connection between time and money focal are likely to cause individuals to rely more heavily on income when assessing their subjective well-being.

The professors — Sanford E. DeVoe and Jeffrey Pfeffer — don’t suggest how a company could do this. Maybe have biweekly pay stubs break down employees’ salaries into hourly wages? Or some sort of desktop widget that shows “how much you’ve earned today?”

Of course, this could backfire spectacularly. I can just as easily imagine someone quitting after they realize how meager their salary looks when it’s broken into hourly increments. (Particularly when compared to the insanely huge hourly rates paid to outside consultants, lawyers, and the like.) Interestingly, there’s also evidence that when you think of your salary in hourly terms, you become more selfish. A 2007 study co-authored by Pfeffer (PDF copy here) found that people who are paid by the hour are more likely to “trade more of their leisure time to earn more money” — such as working on the weekends — and “less willing to volunteer their time and to actually spend less time volunteering.” That makes sense, of course: If you approach every waking hour with a mental taxi-meter clicking down how much cash you could have earned if you were working right at that moment, it’s probably harder to justify clocking an afternoon helping out at the soup kitchen.

On the converse, maybe you’re running a company where you pay people badly, so you want, cannily, to decouple the relationship between your employees’ pay and their sense of happiness. In that case, you’d want to pay them an annual salary and do everything you can to prevent them from thinking about how it nets out on an hourly basis. Then again, I can imagine that backfiring too. Being told you’re being paid $16,640 a year could be rather deflating, given that it’s only slightly above the poverty line for a two-person household. In comparison, being told “hey, we’re paying you $8 an hour!” — the equivalent rate — might seem kind of okay, given that this this exceeds the minimum wage in most American states.

(Yes, that’s right: The minimum wage in most states is pretty much near the national poverty line if you’ve got a spouse who doesn’t work, or you’re single parent with a kid. This isn’t a surprise — I’ve known this for years — but it always kind of freaks me out when I look at those figures.)

(BTW, that excellent photo of the wad of bills above comes courtesy AMagill’s Creative-Commons-licensed Flickr photoset!)

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I'm Clive Thompson, the author of Smarter Than You Think: How Technology is Changing Our Minds for the Better (Penguin Press). You can order the book now at Amazon, Barnes and Noble, Powells, Indiebound, or through your local bookstore! I'm also a contributing writer for the New York Times Magazine and a columnist for Wired magazine. Email is here or ping me via the antiquated form of AOL IM (pomeranian99).

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