By Claudine Kapel
You may be very confident your organization’s compensation programs are market competitive and reward employees fairly and effectively for their performance and contributions. But do your employees feel the same way?
Only 40 per cent of respondents to a recent global survey by Kenexa report they felt fairly paid. That’s not exactly an overwhelming vote of confidence.
The survey results reflect the perspectives of about 33,000 employees in 28 countries who work full-time for an organization with 100 or more employees.
More significantly, the Kenexa research indicates employees who feel fairly paid are also more engaged and less likely to quit.
According to Kenexa, there are three major factors that influence whether employees view their pay as being fair, including the extent to which employees:
- Understand how pay is determined.
- Understand what they need to do to maximize their pay.
- Believe pay is related to performance.
Survey respondents who were more positive in each of these areas were also much more likely to report they felt fairly paid.
Globally, however, only 61 per cent of respondents report understanding how their pay is determined (versus 70 per cent of U.S. respondents). Meanwhile, globally, only 48 per cent indicated they knew how to maximize their pay (versus 57 per cent of U.S. respondents).
Not surprisingly, Kenexa observes the understanding of pay and how to maximize it increases with an employee’s level within an organization. Kenexa adds employees at higher levels have greater exposure to the mechanics of compensation programs through their involvement in the development and approval of such programs.
“The bottom line is that many employees, and even many front-line and mid-level managers, do not understand how their pay is calculated or how to maximize it,” notes Kenexa. “Resolving this knowledge deficit and increasing employee belief in the fairness of pay represents a potentially significant opportunity to increase engagement levels.”
Kenexa says its research findings indicate an employee’s perception of pay fairness is largely a function of transparency. “If an employee has visibility into a compensation program, understands its general design and how it can be influenced, he or she will likely perceive that program to be more fair.”
Kenexa suggests greater transparency can thus enhance how employees perceive even “less lucrative pay packages.”
In addition to the organizational benefits of communicating around compensation, there are also external factors pushing employers toward greater pay transparency.
“Understand and accept that employees will seek out compensation data from external sources such as the Internet, friends and colleagues, affinity group publications, and government publications,” notes Kenexa. “Absent context or education, they will likely use this data to judge the fairness of their own pay.”
The bottom line is that open communication is critical to optimize the value of compensation programs. Programs that appear as a “black box” to employees don’t yield a lot of value in terms of driving desired performance and results because they don’t communicate what’s expected of employees or how their contributions will be rewarded.
For those who may feel squeamish about doing more compensation-related communications, it’s important to understand that pay transparency isn’t about sharing the personal compensation details of individual employees. It’s about sharing the mechanics of compensation – how programs work and what employees need to do to optimize their earnings potential.
Not communicating about compensation doesn’t stop employees from questioning whether they’re being paid fairly. It just means the organization isn’t on hand to guide the discussion –leaving employees to formulate their own opinions in a vacuum with whatever information they’ve gleaned through the grapevine or online.
Given the significant dollars organizations direct to compensation programs, ensuring such programs are understood, valued – and are driving desired outcomes – should be a key priority if such expenditures are to deliver a meaningful return on investment.
Claudine Kapel is principal of Kapel and Associates Inc., a Toronto-based human resources and communications consulting firm specializing in the design and implementation of compensation and total rewards programs. For more information, visit www.kapelandassociates.com.