Frontline Intelligence: HR Consulting - It's not the size of the salary...

by External20 Feb 2013

Employees who believe they are paid fairly are nearly twice as engaged as those who don’t. They are more than twice as likely to remain with their organisations. And they are far less likely to consider their jobs stressful. Alison French outlines how employers can get smart with pay.

Does the size of an employee’s salary drive his or her belief in the fairness of pay? That’s a question Mark Szypko, Kenexa Compensation Managing Director, explored at last month’s Kenexa World Conference during his session “Perception is Reality: The Importance of Pay Fairness to Employees and Organisations.”

The context in which employees interpret their salaries is influenced by many factors. Friends, family, co-workers – all inform an individual’s point of view on pay, and its connection to self-worth. Has your husband or wife (or mother or father) ever said – in frustration – “they don’t pay you enough!”? Have you ever found out that a less senior (or less skilled) peer in a similar role makes more than you do? Before you joined HR, did you ever look up your salary on the internet and come up with a number far from reality?

Without a solid understanding of how pay works within an organisation, employees have no choice but to rely on these external “interpreters” and may quite reasonably conclude that they are not being paid enough and, therefore, that they are not paid fairly. In fact, only half of employees in the US believe they are paid fairly.

Why do we care? Because employees who believe they are paid fairly are nearly twice as engaged as those who don’t. They are more than twice as likely to remain with their organisations. And they are far less likely to consider their jobs stressful. Friends, family and internet factors aside, how do we really measure pay fairness? The external market is probably the best yardstick we have. But as has probably been pointed out many a time, perception is reality.

We can spend all the time in the world developing an elegant, market-based pay program that is the holy grail of “externally competitive and internally equitable”, but if our employees don’t understand how their compensation is determined, how to maximise it, and how it is linked to their individual performance, the external factors will prevail and they may ultimately view even the “fairest” of pay programs as being unfair. What’s the lesson here?

Communication and transparency are key to accruing the goodwill that should be engendered by a well-thought out compensation program.

In essence, it’s not about how MUCH you pay (though we’d still recommend a market-based approach) it’s about how you COMMUNICATE to your employees about their pay. Finding the time to focus on communication and transparency pays big dividends in the end, and can ultimately impact the bottom line.

So to answer the age-old question “does the size of the salary matter?” – Sometimes. But the size doesn’t matter nearly as much as what you do with it and what you say about it.

 

About the author

Alison French is Director, Product Marketing at Kenexa. For further information phone (03) 9602 3899 or email alison.french@kenexa.co

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