It’s well-documented at this point an employee’s perceptions about how they’re paid and rewarded directly impacts their engagement, job satisfaction and employment tenure. Yet, the vast majority of employees do not believe that they’re fairly paid. And according to Gallup, more than half of U.S. workers are not engaged in their jobs.
As a rewards professional, you know how important it is to ensure rewards programs are rooted in principles of fairness. But, are you defining fair pay in a way that resonates with your employees? Can you identify areas where there is a disconnect between your employees and your management team?
Up until now, we’ve not seen research that examines how specific rewards policies and programs impact employees’ perception of fair pay. Fortunately, a new study commissioned by WorldatWork and Korn Ferry addresses some burning questions on the minds of many HR professionals, such as:
- What specific rewards and programs improve or erode employees’ perceptions of rewards fairness?
To find the answers, Dr. Dow Scott — professional of Human Resources at Loyola University and Tom McMullen, Global Reward and Benefits Thought Leader at Korn Ferry — surveyed 290 mid-to senior-level rewards professionals in the U.S. (WorldatWork members). Their research dives into what rewards professionals think are the top areas of employee concern when it comes to rewards fairness.
You can read the full study on WorldatWork’s website, but I’ll highlight what I believe are the most interesting findings below.
Looking internally, promotion opportunities, career development opportunities and base-pay amounts are major sticking points for employees.
When the researchers asked rewards professionals to report the areas in which employees express concerns about internal equity or fairness, they found promotion opportunities (78 percent), career development opportunities (73 percent) and base-pay amounts (67 percent) were frequently identified as the rewards components with which employees express fairness concern.
The finding around base pay probably doesn’t surprise you, given that base pay tends to make up the largest component of total rewards for most employees and it’s an easily comparable figure.
What is surprising is that workers today are way more concerned about promotion opportunities than they were back in 2011, when the same research was initially conducted.
Looking externally, base-pay amounts and base pay/merit increases are areas employees tend to be most concerned about.
The salary amount trumped everything else on the list, likely because it is easier to assess competitiveness for this rewards element than it is for other elements on the list.
Additionally, researchers saw that concerns about base pay are more frequently expressed with regard to external pay fairness concerns (81 percent) rather than internal fairness concerns (67 percent). In other words, the concept of fair pay for employees is driven more by how their pay compares to others in similar roles in the market versus how their pay compares to others within their organization.
However, what’s really interesting is when it comes to distributing those rewards, rewards professionals seem to be much more concerned with internal consistency than with whether they’re paying consistently/in-line with the market.
The researchers gave rewards professionals a list of determinants of rewards fairness and asked them which factors they use to distribute rewards within their own organizations. The factors respondents could select are:
- Consistency with organizational rewards philosophy, goals or objectives
- Consistency with how other employees with similar jobs are rewarded within the organization
- Consistency with what employees have been promised
- Consistency with how other employees with same titles are rewarded within the organization
- Consistency with how other employees in similar employee groups but not similar jobs are rewarded within the organization
- Consistency with how employees are rewarded in other organizations
They found rewards professionals are far more likely to pay attention to internal consistency (first five factors above) versus market consistency (factor number six)!
For instance, 86 percent of rewards professionals say when they reward an employee, they make sure that person’s pay is consistent to other employees in similar roles within their organization. But, only 46 percent say they ensure their rewards are consistent with how employees are rewarded in other organizations.
While paying attention to internal equity is really important, it’s key you don’t neglect the market. When employees think about the concept of fair pay today, they’re most likely to look to the market first (e.g. check out crowd-sourced salary sites).
Based on the results of this survey and PayScale’s own Compensation Best Practices Report (CBPR), it’s clear most employers understand the value of job evaluation and benchmarking in ensuring fair pay and enhancing employee perception. Yet, we found most employers do not share market data with their employees when explaining rationale for giving a raise. In our latest CBPR, we found only 32 percent of surveyed organizations share market data with their employees.
If you do the hard work of ensuring pay fairness — checking market data, ensuring internal equity and consistency — why would you hide this from employees? Even if you do all of this work, employees won’t know what you’ve done until you tell them.
In this WorldatWork study, researchers found communication is in fact a double-edged sword: Comp professionals reported great communication enhances trust while poor communication erodes trust.
Communication is Critical
Based on the findings of this study, it’s clear communication is paramount for creating positive perceptions of rewards fairness and equity. And given employee perception of fairness and equity have a large impact on employee engagement, commitment and turnover, it’s critical you monitor their perception over time and shore up your communications.
Want to learn how to communicate like a pro and improve employees’ satisfaction with their compensation package? In these resources below, we break down communication principles, key steps, tips for training managers and provide the scripts for addressing various common questions employees have about their pay.
Ebook: Communicating Compensation