Improving perceptions of pay fairness

By Claudine Kapel

Compensation programs, no matter how well intended, will deliver only limited value if employees perceive them to be unfair.

A recent study on reward fairness indicates that both compensation and communication practices can influence how employees view their pay. The global study, conducted by WorldatWork, Hay Group and Dow Scott, a professor from Loyola University, polled reward professionals for their views on what shapes employee perceptions of reward fairness.

Actions taken during the recent recession – including pay cuts, pay freezes, reduced incentive amounts and benefit reductions – were cited by respondents as being the top reasons employees feel pay practices are unfair.

The study report suggests “the recession has had a substantial corrosive impact on employee perceptions of reward fairness and equity. As such, reward professionals need to work to regain employee trust in reward systems.”

The respondents identified the usual suspects among the additional factors fuelling concerns about fairness – including inconsistent pay practices, the accommodation of too many exceptions, and favourtism. In addition, they indicated that poor communication also eroded employee perceptions about pay.

Study participants were also asked to comment on what their organization was doing well to improve employee perceptions of reward fairness. Reward communications was by far the most significant theme reported, representing 62 per cent of the responses.

Areas of focus cited by respondents included:

• The identification of core messages;
• The frequency of communications;
• Senior leadership involvement; and
• The creativity and innovation of communications.

Other areas of focus aimed at enhancing perceptions of fairness included:

• Benchmarking internal pay levels against competitive market practice;
• Creating a culture of openness and transparency; and
• Offering non-financial recognition programs.

The heavy emphasis on communication isn’t surprising. Effective communication is essential to build employee understanding and buy-in for any total rewards element. And it is especially vital when an organization seeks to rebuild employee trust and commitment.

It may be helpful to take stock of how your organization’s compensation programs are perceived. Are employees complaining – or complaining more frequently – about how they’re paid or how pay increases are allocated? Have you had any pay equity complaints? Do employees understand how compensation programs operate? Do they know what they need to do to optimize their earnings potential?

The actions of managers can influence how employees perceive pay programs. How skilled are your managers when it comes to making fair and consistent pay decisions or discussing pay with their staff?

 Employees today may also be concerned about whether they are being paid competitively – especially if their organization applied wage freezes or other cost containment measures during the recession. Some employees may feel that they have lost ground over the past few years and may be seeking job opportunities elsewhere to accelerate their earnings growth or career progression.

If you have concerns about employee commitment levels or the retention of top talent, now may be a good time to revitalize the lines of communication. This can include providing employees with an opportunity to express their concerns, updating employees on plans to ensure or enhance the market competitiveness of compensation programs, and undertaking more comprehensive communications about what makes the organization a great place to work.

You may still have some tough questions to answer. But when the lines of communication are open, it is easier to engage employees as part of the solution.