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August 16, 2015

It’s Not the Size of the Salary. It’s What You Do With It.

Addressing the Impact of Salary Size on Employee Engagement

What is Reality?

Does the size of an employee’s salary drive his or her belief in the fairness of pay? That’s a question Mark Szypko explored in the KWC session “Perception is Reality: The Importance of Pay Fairness to Employees and Organizations.” 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?

Perception is Reality.

Absent a solid understanding of how pay works within an organization, 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 U.S. 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 organizations. 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 Mark Szypko and Rena Rasch pointed out in their whitepaper, perception is reality.

What We Strive to Do.

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 employees don’t understand how their compensation is determined, how to maximize 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 unfair. What’s the lesson? Communication and transparency are key to accruing the goodwill that should be engendered by a well-thought out compensation program.

Speak Loudly and Issue a Big Check.

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. We’ve heard this theme repeatedly – from our panel of practitioners in healthcare, from one of WorldatWork’s compensation practice leaders, and from other customer speakers who have experienced the all-too-real link between misperceptions and low engagement. 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.

 

 

Business, Developement, employment, Salary

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