The informal contract

In some companies, people accept lower wages than they could get elsewhere, because they like certain things about their jobs. This is usually the case at nonprofits and educational institutions; but it often surfaces in the private sector, as well.

There are many reasons people stay with a job when they could make more somewhere else. For example, people at some nonprofits believe in the mission of the organization. At profitmaking companies, people may enjoy the challenge of their work; personal freedom; their co-workers; or the company mission. Workers may take great pride in their employer if the product is of high quality, or does something to help people.

One informal contract, for example, provides employees with freedom to do their work as they see fit, provided they accept lesser pay than they might get in another field. At one food distributor, this sunk into the culture to the point where the standard informal greeting to new employees became “It’s great to work here, but the pay stinks.”  Those motivated by higher salaries are drawn to competitors, and replaced by that competitor’s former employees. One company had people who cared more about the money, and the other had people who cared more about the working environment.

At one college, people reported that their counterparts earned an average of $41,000; but their salaries were only $33,000, on average. When asked why they worked there, the most common answer was that they preferred to work in an academic environment.

Violations of the informal contract can have strong negative results. At two sample companies, there was great anger and frustration at such seemingly unimportant “nuisances” as the approval process for minor purchases. Requiring unnecessary approvals is seen as a violation of the contract and an indication that upper management does not trust the people who need to file them.

When people work primarily for the non-financial, intangible rewards, such as a supportive environment, challenging and important work, or pleasant co-workers, non-financial factors are important sources of motivation and dissatisfaction.  Therefore, increasing feedback, communications, and engagement in decisions can have larger impacts than salary boosts.