In the mid-1980s, George Akerlof, who later won the Nobel Prize in economics, and his wife, Janet Yellen, a fellow economist who now serves on the Federal Reserve’s Board of Governors, discovered something peculiar about a group of employers they were studying in Northern California.
Instead of paying employees the wages that supply and demand would have predicted, these companies gave their workers a little more. It wasn’t because the leadership was selfless or the mangers were stupid. It was because they were savvy.
Paying great people a little more than the market demands, Akerlof and Yellen found, helped attract better talent, reduce turnover, and boost productivity and morale. In fact, the firms making the irrational and seemingly frivolous choice to “overpay” their employees, rather than construct elaborate incentives, outperformed their competitors.
Policy makers and business leaders take note: money matters. But often the best use of money as a motivator is to pay people enough to take the issue of money off the table – so that people can focus on the work rather than on the cash.
so if you want to be best of breed, pay best of breed *salaries*; no bull about performance related, or bonus. Thanks to @flowchainsensei for the pointer