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July 28, 2011

That’s Not Fair: How Do Employees Perceive Your Rewards?

As an HR professional, how often do you hear from an employee who is unhappy with some part of their pay or benefits? If I suggested this happened on a daily basis, I doubt there would be many of you who would disagree with me. You may feel like you have done everything to explain how the employee’s total rewards package is, in fact, fair. The term “total rewards” is used to encompass everything an employer offers that the employee perceives as a benefit to the employment relationship. Of course, this includes base and variable pay, benefits, and intangible benefits such as flex-time, telecommuting, and career development.

In May, WorldatWork and Hay Group jointly published a report on employee perceptions of rewards fairness. The survey included 5,000 organizations and 35% of respondents were companies with 100-999 employees. They measured perceived fairness with regard to base pay, variable pay, and non-financial rewards.

HR professionals who participated identified work responsibilities associated with the job and individual performance as the two criteria that most significantly affects perceptions of fairness in base pay. Individual performance was the most significant criteria for incentive or variable pay and non-financial rewards. Although individual performance is a factor in perceived fairness of rewards, HR professionals cannot ignore the job valuing process – market pricing and job evaluation.

Participants were asked as well for the reward practices, programs, and policies that enhanced employee perception of fairness. The top answer by a wide margin was communication. Perceptions of internal equity is “highly influential” to an employee’s level of engagement and commitment to the organization.

What lessons can we take away from this report? With many organizations facing chaos and uncertainty, the best thing you can do as a strategic HR professional is to communicate – early, often, and in many ways – with employees.

Reward Fairness: slippery slope or manageable terrain? WorldatWork/Hay Group Report

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