📓 the psychology of money

The Psychology of Money:

One of the most impactful things an HR team can do?

Build strong compensation practices. 

Pay touches everything at your org from recruiting to performance and retention. 

And it impacts things like engagement, trust, and equity. 

I’ve covered this topic across various newsletters, podcasts and resources. 

📚 Newsletters to read:

• How to write a compensation philosophy
• 3 common comp questions & how to answer them
• Why talking about comp at work is difficult 

🎧 A podcast to listen to:

• A Masterclass on Compensation with Sarika Lamont.  

✏️ Resources you need:

• The Safe Space library has 20+ assets around compensation 

I clearly love talking about compensation but something I haven’t covered as much?

How money actually makes people feel. 

So I wanted to take today and dive into the psychology of money. 

Because money is tied into our self-worth, safety and even status. 

By understanding the psychology of it all we’ll uncover why despite getting a raise some employees may feel undervalued or how the exact same offer can elicit different reactions from candidates. 

Compensation is about managing numbers but also managing the meaning behind those numbers. 

Let’s look at what I mean! 

What money actually means to people:

There’s a deeper psychological meaning to money that goes far beyond the number on a paystub. 

For employees compensation isn’t just about the actual income – it’s about what it represents. 

Money is tied to a complex web of beliefs, emotions and behaviors and can shape things like how we see ourselves, how secure we are, and the choices we make.

What money can really represent: 

✅ Safety: Money can be a stand-in for safety because it secures the essentials like housing, food, healthcare. But beyond survival, it offers options. It gives people control over their lives and the power to say no to what doesn’t align with their values or wellbeing. 

✅ Self-worth and identity: Money is tied in with how people perceive their value and success. Compensation can signal to employees how much they matter – to their company AND the world around them. And when pay doesn’t feel aligned with effort or the impact being made, employees can feel like it’s a personal rejection. Woof!

✅ Power: More money often means more freedom (and maybe more problems according to Biggie). Money can unlock the ability to walk away, take risks, and make decisions without fear. Financial power creates space for autonomy and choice and the ability to choose is quite powerful. It can mean the difference between accepting a job that truly aligns with your values VS one that simply pays more. When money isn’t a constraint, alignment becomes a luxury you can actually afford. 

✅ Fairness: Human brains are apparently wired for comparison which means rarely is compensation judged in isolation. Employees will compare their compensation to what others are earning both inside and outside the org. And when things feel out of sync feelings of resentment and distrust can arise. How many times has an employee come to you with a compensation request because they saw a higher salary reported online? With pay transparency laws, those comparisons aren’t going anywhere and they may become the norm. 

This is just a list of the top 4 associations that I think are the most relevant to work. Money can also be associated with things like validation, control, fear, anxiety, progress, and even love. 

This must be why psychologists and behavioral economists have spent decades studying our complex relationship with money.

Let’s look at some of those experts and what they learned. 

What the experts have to say:

I’m not a psychologist but I thought it could be helpful to include what experts in the field of psychology and behavioral economics have studied and the connection I drew to HR. 

Each of these topics honestly deserves a whole newsletter! 

💡 Maslow: You might recognize this name and the idea of the hierarchy of needs. His idea was that humans are motivated by a hierarchy, starting with basic needs like safety and security. (He’s not wrong) 

The HR connect: If pay doesn’t meet an employee’s basic financial needs, they won’t be able to focus on things like growth, creativity, or connection. As we know, compensation & employee engagement are intertwined! 

💡 Sigmund Freud: Ahh maybe you know Freud from his work around the conscious and unconscious. He proposed most of human behavior is driven by our unconscious fear, desires and conflict and much of it could be influenced by our childhood experiences. When it came to money he explored how it can symbolize control, power, sexual energy. 

The HR connect: Convos about compensation tap into deep psychological territory and become about much more than numbers. There are things at play like self-worth, status, emotion that can be underlying. That means compensation convos should balance empathy, clarity and emotional intelligence. Employees may even be unaware what these convos could bring up which makes these convos even more challenging! 

💡 B.F. Skinner: Skinner studied how people learn and behave and he had a huge impact on behaviorism in psychology. He believed that behavior is shaped through reinforcement. 

The HR connect: If behavior is shaped through reinforcement, then could bonuses, raises and incentivizes not just recognize performance but shape it??? You bet. I believe a well designed compensation structure should always answer the question of what’s our desired outcome when it comes to employee behavior.  

💡 Daniel Kahneman: A pioneer of behavioral economics his researched show that people are far from rational when it comes to money. His research on loss aversion showed that we feel losses more intensely than we feel equivalent gains. I absolutely get that. 

The HR connect: An employee gets a raise and thinks, “Nice.” But then they find out a peer is earning significantly more for the same work. The outcome? That warm, fuzzy, excited feeling disappears instead replaced by frustration or even betrayal. BEEN THERE!! Kahneman’s research on loss aversion explains why: we feel losses more intensely than gains. That emotional impact means we can’t rely on numbers alone to drive employee satisfaction. We must lead with transparency, consistency, and clear context so employees understand not just what they’re paid—but why.

It’s no surprise to anyone in HR that convos around compensation are sometimes the trickiest to land correctly. I hope sharing what these experts uncovered through research helps you understand a bit more about WHY these convos feel so rough and how to address compensation moving forward. 

Because at the end of the day – employees want to be paid fairly for their work and understand they’re not being taken advantage of. And as I’ve shared, it’s not just about the numbers – it’s about what it all means. 

Compensation is the foundation of any organization – fix the problems there and you can build upon that layer to bigger and better things. 

Up next:

So this entire quarter is all about employees and what they REALLY want. 

I’m not a mind reader but I clearly have some ideas. 

Up next, employees want to know that they matter. 

And what does that mean? Guess you’ll have to wait until next week to find out!