New Study Identifies Reward Practices’ Impact on Perceptions of Fairness
July 25, 2011 — PHILADELPHIA, PA —When it comes to reward fairness, it’s neither total pay nor salary increases that have the biggest impact on employees’ perceptions of fairness. That honor goes to career development opportunities, according to a new research report released today by WorldatWork, Hay Group and Loyola University Chicago professor of human resources, Dow Scott, Ph.D. The report, “Reward Fairness: Slippery Slope or Manageable Terrain?” reveals the top five concerns in reward fairness today, identifies the criteria that have the biggest impact on employee perceptions of reward fairness, and uncovers what works " and what doesn’t " in improving perceptions of fairness.
From the perspective of reward professionals, the top five concerns in reward fairness are:
Career development opportunities
Base pay amounts
“Reward professionals view career development opportunities as the top reward fairness concern because growth opportunities are in high demand by employees, while at the same time, career development processes are not particularly developed in many organizations,” said Tom McMullen, Hay Group’s North American Reward Practice Leader. “Career development concerns are also the number one retention issue for employees, according to our employee opinion database.”
Surprisingly, variable pay (i.e., bonuses, incentives), was not among the top five concerns in reward fairness. “Variable pay is likely not ranked as a top concern, because a decent portion of these plans are based on corporate or business unit performance measures as opposed to individual performance measures,” said Dow Scott, Ph.D., Professor of Human Resources and Employment Relations, Graduate School of Business, Loyola University Chicago. “There are also fairly systematic reporting processes in place in organizations that provide periodic communications as to how these programs are performing, resulting in less ambiguity.”
The research report by WorldatWork, Hay Group and Loyola University Chicago’s Dow Scott, also identified the top three criteria that impact reward fairness. These are:
Overall organization performance
Items that did not rank as highly include:
Seniority/tenure with the organization
Time in job
The potential of the individual employee
According to Hay Group’s Tom McMullen, “HR organizations would be well served to establish effective processes around job design and organization design, work measurement systems, person-role fit assessments, and performance assessment processes. Improving these HR infrastructure processes should substantially enhance the perception of fairness in organizations.”
When asked what works particularly well in improving the perceptions of reward fairness in organizations, respondents overwhelmingly identified effective reward communications, followed by external benchmarking, reward strategy and design, and non-financial recognition programs. According to WorldatWork’s Kerry Chou, CCP, compensation practice leader, “Communication is king in improving perceptions of reward fairness. The best organizations focus not only on the core messages to be communicated, but also the most effective messengers and channels. In addition, these organizations devote significant energy to determining how to sustain core messages and equip managers to effectively communicate them.”
The research study also addressed the factors that have eroded perceptions of reward fairness in organizations. The number one response was the poor economic environment (e.g., pay freezes, layoffs, pay cuts), followed by inconsistent application and playing favorites. Reward communications (#3) and leadership (#4) round out the list. “While some factors, such as the economy, are outside of our control, equipping managers to more equitably distribute and communicate rewards can have a huge impact on the perceptions of fairness within an organization,” concluded Dr. Scott.
About the Survey
WorldatWork collaborated with Hay Group and Loyola University Chicago’s Dow Scott, Ph.D on this research initiative. More than 500 WorldatWork members "primarily reward professionals " participated in this study. The majority (76%) of respondents were from organizations in the United States; the rest were from Canada, U.K., China, Germany, Singapore, Mexico, Brazil, Australia, Switzerland, and Russia. The survey was open from November 15, 2010 through December 20, 2010. To read the report, click here.
About Hay Group Hay Group (www.haygroup.com) is a global management consulting firm that works with leaders to transform strategy into reality. We develop talent, organize people to be more effective and motivate them to perform at their best. Our focus is on making change happen and helping people and organizations realize their potential.
We have more than 2600 employees working in 85 offices in 47 countries. Our insight is supported by robust data from over 100 countries. Our clients are from the private, public and not-for-profit sectors, across every major industry.
Dow Scott at Loyola University Chicago
Dow Scott, Ph.D, (firstname.lastname@example.org) is a Human Resources Professor at Loyola University Chicago and frequently advises management on pay policies and programs. Dr. Scott's applied research is often featured at Chicago Compensation Association Breakfast Briefings, WorldatWork Annual Total Rewards Conferences and in the WorldatWork Journal. Dr. Scott has over 100 publications which include his recent book Incentive Pay: Creating a Competitive Advantage and a chapter in The Compensation Handbook by Berger and Berger. Dr. Scott's teaching, research and consulting have focused on the creation of effective teams, employee opinion surveys, performance improvement strategies, pay and incentive systems, and the development of high-performance organizations.