workspan July 2007

Focus on Ethics
Does a Greater Understanding of Pay Equal More Motivation?

Dilemma:
We are having a debate in the compensation and HR groups about the openness of our compensation information. Our current practice is to share grades when asked, but not to share much beyond that. One group is in favor of more disclosure and is pointing to research that employees are more engaged and motivated when they know a lot about their pay. On the other side are folks who say that a more open compensation system can create animosity and a ratcheting effect when one group that contains lower-paid employees, on average, feels it’s making an equal or even larger contribution to the company’s overall success. What do you think?

Response from David Herrington, CCP, Senior HR Compensation Analyst, Bombardier Aerospace FlexJet
Many “lay” employees view compensation practitioners as somewhere between “alchemists and bureaucrats,” while others view them as “saintly professionals.” In my experience, much of this has come from the trust level of employee groups when it comes to their company’s compensation programs and how they are perceived. Throughout the whole CCP educational process and its modules this issue is tossed about as a critical “communication” or “trust” issue to be considered.

The bottom line has constantly been this:  If an employee group, regardless of the level it is at, is given the information as to how and why its structures/systems were created the way they were, in the vast majority of circumstances, the employees in this group will accept the results. The qualifying caveat to this statement is that they should have been part of the process and have been brought into the ownership of the programs when they were being designed. Being “handed down” as the program from on high, or explained as a magical “black box,” is a sure guarantee to distrust toward and sabotage of the proffered program.

The cliché that comes to mind is a “glass house.” If a company builds programs that are transparent and honest, where the mysteries are removed, the responsibility of the company is to maintain the integrity of the pay system. This means the company must be prepared to communicate, educate and re-educate/re-communicate. It must open its resources to employee and management training that is based on two-way information flow.

It must be honest and forthright. The moment a company takes its compensation practices behind the “door,” it invites distrust. In today’s world, “black boxes” are really at risk of Internet exposure and ridicule. Employees are savvier that ever before. Woe to the compensation professional who thinks otherwise.

Employees know there are differences in compensation for different jobs. That’s life. To have them work together and accept differences they must be prepared to explain, not excuse, those differences. The market places of the world offer different prices for the same items/jobs. Employees know this. We need to accept their intelligence. We need to respect their right to know, but for those who make more than others, we must hold them accountable to perform at such levels and in such manners as to deserve their differences in pay.

Response from David Kirby, CCP, Vice President of Compensation and Benefits, Deltek, 14-year WorldatWork member
I would argue that a lack of understanding regarding pay can have a “demotivating” effect upon employees.

In a closed environment, managers are asking employees to accept their word and not question authority. This management style may work well in a production- or task- oriented environment. However, left to their own devices, employees will seek information from any available source. Whether from an intranet salary survey, the water cooler, a headhunter or some other third party, employees will seek to “fill in” the gaps.  These sources often come with misinformation, especially when it comes to pay, and often lead to upset, demoralized and confused employees.

However, in an open environment, the employee and boss are encouraged to have some frank dialogue around what the employee should expect from a market perspective and what the company can (or cannot) do from a salary and career perspective. While these conversations educate an employee on the pay structure, they lead to something far more important—trust. These conversations, allow the manager to be a coach, a leader and a mentor. They afford managers a vital opportunity to set their expectations and let the employees know what they need to do to advance their careers.

The question is not: “Why would you have an open compensation environment?” Given that not having one can lead to a lack of trust, deceit, misunderstanding and ultimately disengaged employees, the question is: “Why wouldn’t you have one?”

return to workspan August 2007