There's a fundamental principle in economics that applies to food, clothing and even all those shiny tech gadgets that start with the letter "i": The more of them we have, the less we value them.
But that may not be so true when it comes to money. New research from Jeffrey Pfeffer, a professor at Stanford's Graduate School of Business, and his colleagues at the University of Toronto and Renmin University of China finds that the more money people make, the more they value it.
The research, published recently in the journal ILRReview, examined data from a longitudinal survey known as the British Household Panel Survey, as well the results from new experiments. In their analysis of the panel data, Pfeffer and his colleagues calculated respondents' hourly income, as well as its growth over time, in order to separate money earned by actual work and money earned from other sources, such as investments. It then compared those hourly earnings to respondents' views on how important it was to them to "have a lot of money."
Their hypothesis, Pfeffer says, was that money wouldn't hold to the same economic principle. "We thought it was quite possible that money was different because of its symbolic nature—when I pay you, I'm also signaling your worth."
And in fact, that's what they found. The more people in the study earned, the more they said money mattered to them. The same correlation was not true when it came to money made from sources unrelated to work. That kind of income, Pfeffer says, has "much less implication for one's sense of mastery or worth."
A couple of the researchers' own experiments backed up the finding. Pfeffer and his colleagues asked students to make as many origami paper planes as they could in five minutes. In one of the experiments, when students were finished, they were all told their work was very good and were given an envelope that had either $1 or $10 enclosed. Some students were told that the money was given randomly, while others were told it was based on the quality of their work.
They were then asked how important money was to them. Those who were told the money came randomly didn't differ in how much they said they valued money. But those who received $10 and were told it was based on how well they did at the experiment were significantly more likely to say money was important to them than those who received just $1. "It's like ego stroking," Pfeffer says. "You can't get enough of it."
Pfeffer also says the research provides implications for how both CEOs and other workers are paid. When it comes to motivating most employees, he thinks it's a reminder for managers to de-emphasize the importance of money and instead focus on the organization's mission. He recalls the story of an H.R. executive who spoke to his Stanford class about how his software company didn't give stock options—an idea that sounded like sacrilege in Silicon Valley. "He said 'look, a raise is only a raise for 30 days. After that, it's a salary.'"
What the executive was implying, Pfeffer says, is that money is like an addictive substance. It raises the bar and leaves people always wanting more. Leaders who focus on money as a reward, Pfeffer says, "are going to have to give more and more of it to have any motivational effect. You're getting people on some kind of treadmill."
When asked what his research tells us about how to get outsized CEO pay under control, Pfeffer references an answer he's provided in the past—tax it at a higher rate, just like any other addictive substance.
While it's a comment he says he once made off the cuff, he doesn't appear to be joking. "What we've typically done with addictive substances like nicotine and gambling is tax them," he says. "Maybe this will fix some of the problem."
Jena McGregor is a columnist for On Leadership.