why Corp. America's compensation structure thrives on fear

Has anyone recently stopped and held conversation with a healthy sample population of Americans currently working in Corp. America? I have, and while I didn't log all the data, the general consensus was people are generally unhappy with their job and the company for whom they worked. They feel their contributions are insignificant, worth"less". As a result, they spend most of their time scared that they'll be "let go"... after all, in most cases, any ol' monkey, or Chinese replica, could do. Seriously.

Allow me to embrace the psychology responsible for the fear associated with #2 above. 

In most cases, in Corp. America (excluding executive and, in some cases, management level pay structure), when the business is projecting its financial performance, it has to balance many costs, but the two I'll talk about here are employee compensation and EBITDA. Whether privately or publicly held, shareholder value, where protecting such is the excuse for any activity in business, ethical or not, can be directly related to EBITDA. So, logically, owners want to know, to the best possible guess, what it will be, and how it will be protected. Therefore, the people responsible for creating it want to be able to predict it. 

Employees cost money, and anything that costs money impacts EBITDA. Because management cannot predict everything, they are going to control everything they can. Employee compensation is one item on the income statement they can absolutely control. This is where the "fixed-rate annual gross compensation step-up" comes in. By fixing the % increase in annual gross pay employees receive, they can lock-in a future G&A cost, eliminating a factor of unexpected EBITDA consumption, therefore helping maximize it. 

Here's why this breeds fear in the mind of the employee. 

I will use a fictitious man working in Corp. America, call him Jack. I will use a real employment scenario found within Corp. America, today, to represent Jack's compensation arrangement. 

Jack is an engineer. He makes $60,000, gross, without bonus or otherwise, per annum. His employer has agreed to qualify him for a 2.3% raise in gross annual pay, each year of his employment, so long as he meets "satisfactory" work performance criteria. Assuming he does and will, Jack now knows he will make $60,000 year 1, $61,380 year 2, etc. 

Now, basic human psychology starts to assess this arrangement, curious whether or not Jack can meet his needs, according to Maslov, under these conditions. Jack believes he can. He then builds a dependency on the income, constructing his life backwards from his paycheck. This is normal behavior, given our economic structure, in America; mortgage is underwritten accordingly, car loan DTI's calculated, etc. 

Jack is now 100% dependent on his $60,000 gross annual income, and is excited about the 2.3% raise he'll begin to experience next year. 

Here is the problem. 

Jack knows he is unable to earn additional income beyond his 2.3.%. He therefore knows exactly what he will make, subject to a performance review (which he believes he'll "ace"), so he has absolutely no incentive to perform beyond his basic job function. Why would he? What happens here is the basic psychological reward system defaults to a negative reward system, whereby Jack is now working only to "keep" his $60,000 gross + 2.3% annum step, or working to "not lose" it, instead of working to "increase" it.

When you are working to "not lose" something, you are living in fear of losing hit. 

Think about this: if I offer you $100 to paint my house, with an extra $2.30 each week during the job, I have fixed, and completely exposed your incentive structure. You have no control over your pay. Because you lose control over your pay, the incentive, at that point, is to do what it takes to meet my requirements, since your behavior isn't a factor in determining how much you make. You paint, collect your check, paint, collect your check. 

It's quite simple: Jack Co.'s management has successfully fixed Jack's cost, inviting them that much closer to selling their projections to owners with confidence (and keep in mind their compensation is a function of meeting budget... :-), and Jack is scared to lose his income instead of excited about growing it. 

Which Jack would be the better employee?