Why “Fair” Raises Can Demotivate Your Best Employees

I want to share a story from my early career that taught me one of the most powerful lessons about motivation and leadership. It goes back to my time working in a law firm in Jackson, Tennessee. Now, I’ll be the first to admit that I was not the best employee in the world. I knew the legal field wasn’t going to be my long-term path. The job was something I took while finishing my MBA, and while I worked hard, I also knew it wasn’t where my heart would stay forever.

When I first started, I loved the job. I liked my boss, I was excited, and I wanted to do well. For about a year and a half, things were fine, but then I had my first real performance evaluation. The feedback wasn’t shocking. The biggest critique was because I didn’t like answering phones, and I let too many calls go to voicemail. Still, they were happy enough with my work that I received a raise. Nothing huge, but something.

Here’s where it got interesting. They explained the raise as “performance-based” and then told me not to discuss it with anyone. Of course, what do employees do the first chance they get? We all went out to lunch and compared notes. That’s when I found out that everybody got the same raise. Straight across the board.

Now, if they had framed it as a cost-of-living raise, I probably wouldn’t have thought twice about it. But because they called it performance-based, I felt cheated. I wasn’t perfect, but I certainly wasn’t one of the employees who spent entire days chatting back and forth online instead of working. Yet those folks got the same raise that I did. The message was clear: effort didn’t matter.

And you know what happened? I stopped trying. Before that, I was the one who came in early, did the extra random stuff that needs done but isn’t really assigned to anyone. But once I realized my extra effort meant nothing, I coasted. Within a few months, I had left and gone on to graduate school.

Looking back now, with years of experience and a PhD in Management, I understand the psychology behind what happened. This is a classic organizational behavior problem. When leaders fail to recognize and reward true performance, motivation drops. People lose trust in their leaders, they lose faith in the fairness of the system, and eventually, they disengage.

I’ve told this story many times, and almost everyone I share it with has their own version. Maybe it happened to you on a sports team - you practiced hard, showed up every day, but someone else got the starting position or the recognition. Maybe it happened at work when promotions or raises seemed to go to the wrong people. No matter the setting, the lesson is the same: when effort and outcomes don’t connect to rewards, people check out.

So, take note. If you want engaged, motivated employees, you must be thoughtful and transparent in how you reward performance. Cost-of-living adjustments are fine, but be honest about them. Save “performance-based” for when you truly mean it. Your best employees are watching, and they’ll know the difference.

I’m here to help!

-Dr. Lean (June, 2025)