A drop in the bucket: when is a pay raise a pay raise?

Although merit pay continues to receive much theoretical and practical attention, little systematic effort is devoted to determining how large a pay raise must be before employees see it as a pay raise. This study uses psychophysical reasoning and techniques in a sample of 192 student ‘employees’ to establish the size of pay raise thresholds in a relatively controlled setting. Results indicate that, below about the 7 per cent level, increases in pay amounts are unlikely to evoke positive perceptual and attitudinal reactions among employees. Theoretical, methodological, and practical implications of these results are highlighted.