Page 70 - How to Drive the Bottom Line with People

Built to Serve

Dr. Gourville provided the illustration below,
graphically depicting a person’s psychological pro-

cessing of a $5,000 raise. The graph to the left shows
the raise given in January 2006, whereas the graph
at the right illustrates the person’s psychological

position a year later. Not surprisingly, the $5,000
increase is now considered the “status quo.” In other
words, as 2007 rolls round, the psychological value
of last year’s raise is no longer seen as a gain.

January 1, 2006 December 31, 2006
Psychological Psychological
Value Value
46
=
V($5,000)
Losses Gains Losses Gains
“Status +$5,000 “Status
Quo” = Quo” =
$50,000 $55,000

Companies that deal only with the skin, the

outer issues, attempt to solve morale problems
with money (tangible cash compensation), rather
than investing time and energy into understanding

the culture (intangible lifestyle factors). It is cus-
tomary these days to base cash compensation on
performance; however, consider alternatives where
the psychological value is not lost. Trips and spe-