For how long did you celebrate your last raise? Was it months? Weeks? Days?

I asked a colleague this question and he laughed. “I probably celebrated my raise for as long as it took me to walk from my boss’s office back to my desk,” he told me. It got me wondering why we wouldn’t be happier with a raise of 3% or 4% these days. It’s a significant amount of money. It enhances our bank accounts and allows us to purchase more goods and services that will—ideally—enrich our lives. More stuff, more happiness, right?

This celebration doesn’t last because of what researchers call the Hedonic Treadmill—a theory which describes a condition we all recognize: we adapt surprisingly fast to circumstances, such as income. As a person makes more money, their expectations and desires rise with their income, so there is no permanent gain in their happiness. In other words, a raise quickly becomes a new plateau.

By the time we receive our raise, we have already adjusted our mental perspectives to be commensurate with our new income. This happens within moments after being notified of it. We might rationalize that the raise is a modest amount, or that it’s hardly noticeable over any single pay period; however, what’s already happened is that we’ve allowed our desires to rise at the same level (at the very least) as our income has. As a result, we feel no sense of celebration, no extra bit of happiness, and no exaltation in our new level of income and lifestyle.

What About the Joneses?
Recently, Ed Diener from the University of Illinois conducted a massive study on happiness. In coordination with the Gallup organization, Professor diener researched happiness on a variety of factors in more than 100 countries.i His results were counter-intuitive in some cases but the research is sound. As you may imagine, people in wealthier countries were, in general, happier than those in developing nations.

But Professor Diener uncovered a surprise: in every participating nation and in every culture, your happiness is influenced by how you perceive your peers to be doing.

In other words, every culture has its own version of keeping up with the Joneses. While it’s pervasive in countries such as the United States and the United Kingdom, it may be surprising to see it exists even in Bora Bora.

The trouble is this: we’re comparing the very discreet and complete information of our own personal situation to others, for whom we have only vague perceptions. When we compare ourselves to someone else, we don’t know how they’re really doing—all we have is a perception of how they’re doing.

When I was young and begged for a GI Joe with the Kung Fu grip because “all” my friends had one, my father said, “No— their families can’t afford those toys, either!” It made no sense to me that my friends’ parents couldn’t afford GI Joe yet
my friends had one. At one level, my father was right. When I see a neighbor in a flashy new car or a stylish new suit, my first reaction is to think, “Ah, she’s doing well!” In reality, I really don’t know. She may be relying too much on credit
and overspending her budget or she may be benefiting from a gift from a parent. Ironically, when we want something, we value it more than the things we already have, yet once we have it, we value it less.

The Tie-In
After the raise, we’re still unhappy because we’ve immediately adjusted our comparison to the Joneses who are living upward a notch from our own situation. We are now comparing ourselves to our perceived peers in a new group, a new stratum. Before the raise, we thought of ourselves as rotary Club, but after the raise, we’re thinking we’re Country Club. In fact, we may be less happy because with the new comparisons comes a whole new level of competition. our Joneses got notched up and we’re going to have to work hard to keep up with them.

Money, per se, will never buy us happiness.

How to Get to Happiness
There are two ways to achieve more happiness: one is to lower our expectations and desires. We could compare ourselves to the rotary Club Joneses and—after the raise—find ourselves happier than ever. But that’s not likely since modern societies are so firmly driven by consumerism. Additionally, this kind of healthy coping is outside the control of managers.

Oddly enough, the other way comes in the form of corporate rewards, not compensation—gifts, not purchases. If our income and expenses stayed the same, but we were awarded (or earned) more stuff with which to compare ourselves to the Joneses, we might find a little more happiness. Because rewards are not perceived as income, we don’t upwardly adjust our peer group. In other words, we tend to stay rotary Club in our minds while living with the Country Club stuff.

And there’s a bonus for the corporate managers that operate these programs. Award recipients associate this happiness with the sponsoring organization—both at the time of the reward and thereafter. We recall the sponsor every time we use our new—fill in the blank—award. ii

We don’t feel the same way about cash or its equivalents. Some of these are market-driven, but make no mistake: these “benefits” as they are sometimes called will yield no long-term gain to the employees because of their natural hedonic treadmilling. The recipients will not credit their employer for anything they buy with their income, debit cards, or gift cards. It will be perceived as their purchase with their money.

Don’t be concerned that your employees are not celebrating their raises. Focus on how to engage them with a culture of recognition that will more deeply link them to the enterprise. People deposit raises. They celebrate rewards. And that may be the key to more effective motivation.

End Notes
i    Diener, e., Ng, W., Harter, J., and Arora, r.,“ Wealth and Happiness Across the World: Material Prosperity Predicts life evaluation, Whereas Psychosocial Prosperity Predicts Positive Feeling“ Journal of Personality and Social Psychology, Vol. 99, No. 1, 52–61, 2010.
ii    Jeffrey, Scott and Mu, di Sabrina, “The Cost of Freedom and the Benefit of restriction,” unpublished manuscript, draft from June 2010