Just over half of U.S. employees believe they are being paid fairly compared with workers who hold similar jobs, either at their own or at other companies, new research shows.
"Pay equity is rapidly becoming a high priority for employers, especially with base pay continuing to be the most frequently cited reason employees choose to join or leave an organization," said Laura Sejen, managing director of talent and rewards at consultancy Willis Towers Watson in New York City.
The firm's 2016 Global Workforce Study polled 3,105 employees in the U.S. earlier this year. Among the findings:
- Just over half of employees (55 percent) feel they are paid fairly compared with people in their organization who hold similar jobs.
- 53 percent believe they are being paid fairly compared with others in similar roles in other companies.
The survey also measured whether employees understand how their base pay is determined and how their total compensation stacks up compared with others:
- 65 percent of employees say they understand how their salary is determined.
- Far fewer understand how their total compensation compares with that of the typical employee in their organization (39 percent) and with the typical employee in other companies (34 percent).
Many employers have not laid the groundwork to ensure employees are paid fairly, suggest findings from a companion study. The consultancy's 2016 Global Talent Management and Rewards Study of senior executives at more than 441 U.S. companies found that only half of employers (52 percent) have a formal process in place to ensure fairness in compensation.
"For employers, there is much at stake and also room for improvement," Sejen noted. "Employees' perception that they are paid fairly is closely linked to their engagement, which, in turn, drives overall productivity and, ultimately, financial performance."
Employers will also need to address the growing need for more pay transparency, "given the increasing expectation of openness regarding pay and pay equity," said Sejen. "It's becoming much easier for employees to gather salary information from online sources and learn what people with jobs similar to theirs are earning. But before they can be more transparent about pay, employers will have to make sure their programs are designed, administered and delivered effectively."
According to the survey results, companies tend to hold managers at least partly responsible for employees' perceptions that pay is unfair. The poll of senior executives found that less than 4 in 10 (39 percent) said managers execute the company's base pay programs well, and about one-quarter (26 percent) disagreed with the statement that "Managers are effective at fairly reflecting performance in pay decisions."
"The importance of effective employee communication around pay has never been greater," said Kate Van Hulzen, global practice leader, communication and change management, at Willis Towers Watson in Houston.
A growing number of states have adopted pay equity laws, and public companies—beginning in their 2018 proxy statements—will be required to disclose the ratio of CEO pay to median employee pay. These and other government-mandated disclosures are likely to add fuel to growing concerns over pay equity and employee understanding, Van Hulzen noted.
"Employers should take this opportunity to conduct analyses of both external market competitiveness and internal fairness and develop an action plan to address pay equity issues," she advised.
Also recommended: train managers and provide them with resources to explain how base pay decisions are made and how variable pay incentives, if available, can be earned.
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