As many of you know a few years back as part of my efforts to promote employee engagement a few years back I created a management model that I called moving from little c to Big C or from compliance to Commitment.
I have always maintained that commitment or engagement is much more about alignment than more esoteric things like happiness or morale.
There has also been a debate for generations about the importance of compensation as a motivating factor in the employment relationship. Many HR practitioners, myself included believe that compensation is really a break even proposition. If you do it well you break even and people don’t leave your company for that reason, if you do it poorly you give them either a reason to look or a socially acceptable reason to pursue other employment.
This causes me to identify the third C in the engagement journey- communicating about compensation.
It has been my position for quite some time that having a compensation model that is understood and seen as fair and equitable in its treatment of employees is much more important than technically elegant compensation models. Employees also seem to be increasingly inclined to desire input about their performance and pay related decisions from a broader base of input than the traditional direct supervisor model.
To support that perspective I go back first pre- Recession to a study done by international compensation consulting firm Sibson and Company surveying several thousand employees in multiple sectors that reached some interesting conclusions-
• While a significant majority of employees surveyed 65% indicated they were satisfied with their pay level (their salary range compared to other positions) and 71% indicated they were satisfied with their current pay, 57% of the employees surveyed indicated that they were dissatisfied with the way their employer awarded pay. For the purpose of this study process means the determination of individual pay increases, promotion decisions, and progress through the pay structure.
• 16% of the employees also indicated that they were highly likely to leave their current employer, with compensation being part of the reason they were looking.
• The study showed little to know difference between the perceptions of generations.
So let’s fast forward to 2015 and a study conducted by PayScale of 71,000 employees looking for a link between compensation and employee engagement which yielded some interesting perspectives-
• The study concluded that one of the top predictors of employee’s potential to be engaged was the organization’s ability to communicate clearly about compensation. It was in fact identified as more important than career advancement, and employer appreciation.
• Many employees perception of pay doesn’t reflect reality, in fact two thirds of those surveyed who were being paid market rate perceived themselves to be underpaid.
• The perception of under paid translates into potential action, 60% of employees who believed themselves to be underpaid also indicated an intent to seek other employment.
• The communication loop is critical. The study indicated that when employers who pay lower than market communicate clearly about the reasons that 82% of the affected employees still felt satisfied with their work and employer.
• The issue becomes more pronounced with more highly compensated employees and women are more likely to perceive themselves as being underpaid relative to men even when they are compensated at or above market.
For me these findings validate two beliefs I have held for a long time-
• The idea of “equity” in terms of perceived fairness and the rationality with which pay is delivered is equal to or higher in importance to the rate itself once you advance above “living wage” thresholds.
• Having a compensation model that is understood and seen as fair and equitable in its treatment of employees is much more important than technically elegant compensation models.
Let’s be candid most compensation delivery systems are designed by human resources professionals (or worse yet consultants) for other human resources professionals. It is an arcane language that we whisper about in our own secret language. Information is usually only shared with line managers on a “need to know” basis. And bluntly managers often hide behind this in having conversations with employees, especially when there is a difference between employee expectations and pay delivery.
I want to be clear about what I am not recommending here.
I am not recommending that paying below market, but having a great “story” is a good long term approach.
I am saying that being prepared to discuss how you make decisions around pay is a critical process. Included in that discussion needs to be how you define your markets and target your delivery against those markets and just as importantly how we make decisions about individual pay. Everyone doesn’t perform at the same level, but we need to communicate what represents above, at, and below our expectations and how that correlates to compensation.
This is where alignment comes in. If we are truthful we pay people because we have to, not because of our benevolent streak. If we aren’t creating that line of sight we are leaving significant leverage on the table.
Communicating about compensation is a management activity not a human resources activity! Human resources should provide the technical expertise to track markets and recommend strategy, but delivery belongs with the manager.
The amount of information, some of it less than accurate that employees have access to shapes their perceptions, especially in the absence of a clear message from the employer.
So at the end of the day here are the things I want you to take away-
• Engagement and commitment are superior to compliance
• Engagement only happens with clear line of sight and that is the key purpose of management and leadership
• Pay is important. Communicating about pay is critical……