Editor's Note: In today’s classic, Margaret O’Hanlon serves up a fundamental challenge to the way we think about salaries. Research from the Hay Group helps us realize that employees have stronger feelings about pay “fairness” in relation to other employees than about external competitiveness. It’s a great follow up to Stephanie Thomas’ recent article on research that indicates, among other things, that executives care less about absolute earnings than they do about how they are paid relative to their peers.
What does fair mean? The Hay Group has recently dared to ask this question of 568 WorldatWork members in relation to their rewards. A bold move, I think. No one's had the guts to look this one right in the eye until now.
Fair, after all, is a loaded word. Throughout my career, I have advised clients against its use. Most any lawyer would, too. But employees keep talking about it because their feelings are so strong. They're natural feelings that we encounter regularly and should try to understand.
I was introduced to the research by Brooke Green, a Principal at the Hay Group, with whom I am giving a series of presentations on compression for the Northern California Human Resource Association (NCHRA). The minute I saw the report, I was sure we had to talk with you about the data, especially in the context of compression.
After all, by definition someone is getting treated better than someone else when you are having compression problems. (BTW, it turns out lots of Northern California companies -- both tech and non-tech -- are.)
I am going to list the findings that I think are the most interesting. They are surprising and offer important clarifications. The full report will be presented at the upcoming WorldatWork Conference in San Diego.
For employees, fairness concerns are typically "relative" to two areas. Employees gauge what they are getting out in relation to what they are putting in. Are they being recognized in line with their own perceptions of their effort, performance, qualifications, job challenges? Second, they look around for comparisons. Does the recognition they've received parallel how their supervisor, subordinates and peers have been treated?
What does that mean if you are facing compression issues? For employees, fairness has a very personal, individual definition. Managers will have the most influence on these perceptions. They will need to be careful about their words and the consistency of their practices.
Employees feel far more strongly about all dimensions of internal equity than they do about external equity -- with the natural exception of base pay.
What does that mean if you are facing compression issues? Expect employees to be hypersensitive if you are bringing in new employees at higher rates or opening up career growth opportunities to limited, select departments. Ditto if supervisors see little distinction between their own and their subordinates' pay. Treat your implementation plans accordingly -- don't pretend that secrets will be kept.
Senior management considers fairness important, but not mission critical. And few seem to expect it to be designed into rewards programs, although most do believe it has a role to play.
What does that mean if you are facing compression issues? Realize that HR carries the ball on this one. You need to be sure you are building the company's culture by demonstrating its values through your rewards. Then explain this rationale to senior management. It's likely that they'll get it. And if you need to provide adjustments to select jobs or departments to resolve compression, make sure that you and your managers can explain why.
Of course, here's where I make the clarification that everyone's been expecting. Rewards programs should be designed to be equitable in relation to your business challenges (i.e. even handed, balanced), rather than fair (i.e. a personal sense of right vs. wrong). So along with the insights, Hay provides recommendations on how to improve employees' perceptions of fairness by delivering equitable programs, processes and communications. It's worth a look!
Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. Margaret is a Board member of the Bay Area Compensation Association (BACA). She coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at https://gumroad.com/l/everythingiscommunication.
Margaret,
We have to see the comp system from employees' view point, not dismiss the fairness as a "personal" matter that we cannot and should not solve.
Posted by: Maxwell | 05/27/2017 at 06:36 AM
Agree with Margaret, that compensation people must be aware of employee perceptions but not ruled by them. Understanding is not the same as agreement. The "personal" in "personnel" is never dismissed, is never ignored and is never the most vital factor. Obsessing about "pleasing everyone" is not healthy for HR professionals.
Posted by: E. James (Jim) Brennan | 05/27/2017 at 05:12 PM