Perhaps complaints are looming in your organization regarding base pay, cost of living adjustments, or merit increases. We’ve all experienced these common pay complaints and possibly more often as of lately as pay satisfaction is a key issue this year and only becoming more significant given the leveling and decreases in salaries, wages, adjustments, increases, and incentive pay occurring in the past year. Pay satisfaction influences employee’s engagement, desire to stay with the organization, and general job satisfaction. When employees are more satisfied with pay and understand how it is determined, they are less likely to question it.
Two recent surveys report the significance of providing employees with greater understanding of organizational pay practices. The results of the Knowledge of Pay Study conducted by WorldatWork and The LeBlanc Group LLC, indicates that many employees are unclear as to how decisions are made about their base pay and how their base pay increases are decided (36%). Employees seem relatively unfamiliar with the types of external benchmarks and processes that HR uses to benchmark pay rates in the market as well as to determine incentive amounts. Similarly, another study by the Corporate Executive Board shows that pay conversations between managers and employees were found to be three times more important than pay conversations between HR and employees and also showed that more than half of the impact of workplace initiatives surrounding compensation comes from the way it’s implemented, implying that compensation procedural factors are significant.
What all of this research seems to indicate is that pay processes are in need of being grounded in a standard process that is transparent to employees and communicated on both the organizational and supervisory level. Here are four action steps your organization can use to increase pay satisfaction through procedural standardization and enhanced transparency.
1. Institute a Standard Process
Institute a standard process for evaluating pay rates, adjustments (cost of living, market, and merit), and incentive/pay for performance practices on an annual or bi-annual basis. Organizations do this by using compensation surveys and/or job evaluation to evaluate pay rates. Whatever the method used, it’s recommended that you be consistent and use the same method each year.
2. Analyze How Pay Rates Differ
Analyze how pay rates differ – especially among individuals in the same jobs. If pay rates are differing by valid factors such as performance, education, skills/competencies, and/or other job-related variables, this is acceptable. If they are not varying by valid factors (race, gender, and other extraneous variables), this could increase your liability so take steps to equalize pay rates and reduce differentials. Even if your policies prohibit discussion of pay rates, realize that talk does happen in the workplace and employees will be constantly comparing how they are paid relative to others. The danger is to have differentials that cannot be accounted for by performance and job-related variables.
3. Use Market Information Cautiously
Be cautious when using market information to base adjustments and increases. Realize that if your organization had an extremely profitable and successful year but the market is showing a low adjustment being given by other employers and you choose to provide a low market adjustment, employees may feel a disconnect. We’ve seen this happen and it can decrease pay satisfaction. It’s recommended that you consider internal organizational factors in addition to the market as organizations are performing differently in this variable market.
4. Develop a Communication Strategy
Develop a communication strategy that includes managers. Employees need to know how their pay rates are being determined at the most basic level (comparing pay rates to the market, what markets you’re using, how job evaluation is conducted, when pay rates are evaluated, how often, etc.) and what the organization’s pay philosophy is (at market, above market, etc.). Be transparent about the process, because most employees will fill in the blanks with their own perceptions, ideas, and opinions if you don’t communicate fully.
While pay will likely never be your highest scoring item on an employee survey and there will probably always be some level of dissatisfaction prevalent among employees, these are strategies that many employers use to successfully enhance employees’ pay satisfaction.
Corporate Executive Board (2010). Compensation Roundtable Survey.
WorldatWork & The LeBlanc Group LLC (2010). The Knowledge of Pay Study.
- Surveys: Benchmark your organization’s pay rates against other Northeast Ohio employers for over 300 positions by using ERC’s newly published 2010 ERC Salary Survey and 2010 ERC Wage Survey. Contact firstname.lastname@example.org for more information on accessing this information.
- HR Research Library: Visit ERC’s library to gather compensation information using our many reputable salary surveys. Please click here for more information on accessing this free benefit for all members.
- HR Help Desk: Obtain guidance on developing a compensation program as well as sample policies, practices, and compensation data by emailing email@example.com.
- HR Consulting/Project Support: Outsource your compensation project to an expert or obtain one-on-one guidance from an HR professional on developing a formal compensation process internally. Contact firstname.lastname@example.org for more information on how ERC can assist you in your compensation projects.