Wednesday, September 28, 2011

Why Reward Fairness Matters

Last Summer WorldatWork and the Hay Group issued a report on reward fairness. I see four important lessons in the report.

1) Fairness Matters. It's easy to dismiss employee concerns about fairness, thinking they must accept assurances that what they see is, indeed, fair. That approach, however, not only leaves employees cold, it also reduces their performance. The report shows:

"No matter how sophisticated the design, reward programs, policies and practices that are not perceived as fair will not successfully attract, retain and engage employees. Specifically, reward fairness and the related constructs of pay justice and equity have been found to be storngly related to employee attitudes including pay satisfaction, intention to quit, and perceived organization support. Perceptions of reward fairness also have been found to impact employee behavior such as absenteeism and citizenship behavior, individual performance and organization outcomes."

2) Annual merit increases cause strife. Employees expressed concern most often about fairness related to the allocation of merit increases. This is not surprising when much more than compensation is wrapped up in the merit increase. This flawed process has forced employees to look at the merit increase as not just a pay raise, but also the entire sum of the worth and value management sees in the employee's contributions.

A far better approach is to separate the two in employees' minds. Communicate to them clearly throughout the year when their work is of merit - recognize and reward them appropriately in the moment.

3) Recognition, incorrectly implemented, causes strife, too. Recognition is also cited as a point of fairness concern by employees. The report explains:

"Not surprisingly, reward professionals report that employees express the most concern about those reward elements where their managers make individual judgments about the level of rewards that employees receive."

This is a classic challenge of traditional "elitist" recognition programs in which only the top 10% of performers are ever recognized for their work - and only by managers. Employees quickly begin to perceive these programs as a favoritism game.

A better approach includes peer-to-peer recognition in which any employee can recognize another for their stellar efforts and targets the top 80% of employees for recognition when they demonstrate your core values in their daily work.

4) No one cares about Years of Service or seniority fairness. Two of the lowest scoring options for employee concern about reward fairness are seniority/tenure and time in job. Yet these are the most popular programs for HR leaders to implement - even though Years of Service programs do not move the needle on employee engagement as well as recognition tied to corporate values and the great work employees do. Years of Service programs have their place in acknowledging employee loyalty over time, but they should never be the primary recognition mechanism in an organization committed to engaging and motivating its employees.

Or, as my Compensation Café colleague Laura Schroeder so ably commented:

"You don't rely on massive annual processes in other parts of your business. For example, I'm guessing you don't produce all your widgets in one day or pay all your suppliers once a year because it would be eccentric and inefficient. So why reward people that way?"

Do your employees perceive your reward programs as fair? Do you?

As Globoforce's Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management.

Thanks to Derek Irvine / Compensation Café

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