Pay Fairness: It’s Both Complicated AND Hard For Companies to Define

Photo by Dreamstime
Photo by Dreamstime

By Ann Bares

What does it mean to be rewarded fairly?

I would submit that this is one of the biggest and most loaded questions of our time. Just look at the manner and levels at which it is driving our national dialogue and defining the reach of our regulatory efforts – from the decrying of executive compensation excesses to the push for gender equity, from the debate about public versus private sector pay packages to the increasing attention on wage and hour compliance matters.

Reward fairness is also the topic covered in new research conducted by the Hay Group (Tom McMullen and Mark Royal, Ph.D.), in conjunction with Loyola University’s Dr. Dow Scott, and featured in a session I attended during the recent WorldatWork Total Rewards conference in San Diego. The research, which features both quantitative and qualitative analyses, reflects the responses of 568 WorldatWork members.

A few of my key takeaways from the session:

Know what impacts fairness

According to the research, the two reward areas of highest concern to employees with respect to fairness are career development and base pay (both amount of and increases to). Not surprising, as the researchers note, because these are two areas, in particular, where “demand” always exceeds “supply” – a condition which is bound to focus attention on the “distribution” mechanisms or procedures. Since fairness concerns tend to relative, it is also interesting to note that for these and nearly all reward elements, concerns of internal equity appear to outweigh external equity concerns.

Don’t confuse equitable treatment with equal treatment

There is a simplistic tendency to take the approach that the more equal we make things, the more fair they will be. Fairness in rewards, however, is not that easy or straightforward. It is a complicated and multi-faceted concept.

The researchers note three components of fairness that are particularly important to rewards:

  • Distributive fairness (who gets what);
  • Procedural fairness (where a clear, fair and consistent reward process is important); and,
  • Interactional fairness (quality of the employee/employer relationship and overall work climate).

Unfair treatment – or just the perception of unfair treatment – is corrosive

Pervasive concerns about fairness will take their toll on morale, engagement, commitment and performance. They can foster a climate of distrust and hostility – creating an unhealthy and unproductive workplace.

Number 1 eroder of reward fairness perceptions? According to the research, it has been the economy with its trail of pay freezes, pay cuts, etc. Numbers 2 and 3: inconsistency/favoritism/exceptions and communication.

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The poor economy and its unhappy consequences, for most of us, is beyond our direct control. The others are not – and we need to acknowledge their potential for sapping trust and goodwill from our reward practices.

Address fairness with good communication, not just transparency

Communication is king when it comes to addressing concerns about fairness. Assuming we have a strong and fair reward program in place to begin with, it is good – but not sufficient – to simply make it more transparent. We need to proactively share information about the philosophy and principles on which the program is built and how it operates. Without good information on the program’s intent and mechanics, employees are forced to create their own stories and explanations.

Reward fairness is a complicated, murky and highly personal thing. Employees are making their own equity comparisons every day, all in different ways, and guided by their own individual points of view and levels of understanding. Given this, I believe it is nigh impossible for an organization to meet the individually-determined fairness criteria of every employee. Instead, it must declare its own.

The researchers note that few compensation philosophies or reward strategies explicitly address how fairness is defined and managed in the organization.

Perhaps that needs to change. What do you think?

This was originally published on Ann Bares’ Compensation Force blog.

Ann Bares is the Managing Partner of Altura Consulting Group. She has over 20 years of experience consulting in compensation and performance management and has worked with a variety of organizations in auditing, designing and implementing executive compensation plans, base salary structures, variable and incentive compensation programs, sales compensation programs, and performance management systems.

Her clients have included public and privately held businesses, both for-profit and not-for-profit organizations, early stage entrepreneurial organizations and larger established companies. Ann also teaches at the University of Minnesota and Concordia University.

Contact her at abares@alturaconsultinggroup.com.

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