Base pay continues to be a top driver of attraction and retention for employers, but only 53% of employees believe they are being paid fairly compared with others in similar roles in other companies.
The 2016 Global Workforce Study by Willis Towers Watson lists several reasons for the high percentage of employees who feel they are underpaid (24%). Those include the fact that that today’s employees have easier access to salary information online and an expectation of openness and transparency from employers.
“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,” says Laura Sejen, managing director, talent and rewards, Willis Towers Watson. “For employers, there is much at stake and also room for improvement. Employees’ perception that they are paid fairly is closely linked to their engagement, which, in turn, drives overall productivity and, ultimately, financial performance.”
While a little more than half of employers (51%) hold managers partially responsible for the low effectiveness of base pay, employers do recognize that plan designs could be an issue. As such, more than 50% have already taken action, or are planning or considering taking action to change the criteria for base pay increases, the study notes.
To combat these challenges, a number of employers say they are looking to build a better framework from the ground up to ensure fairness in compensation distribution. Dovetailing with the Global Workforce Study, WTW’s 2016 Global Talent Management and Rewards Survey found that only 52% of employers have in place a formal process to ensure equality in compensation distribution.
The study also measured an employee’s understanding of how base pay is determined and how her total compensation stacks up compared to others. According to the data, only about two-thirds of employees say they understand how their salary is determined, and less than four in 10 employees say they understand how their total compensation compares with that of the typical employee in their organization (39%) and with the typical employee in other companies (34%).
“Employers will also have to address the growing need for more pay transparency, given the increasing expectation of openness regarding pay and pay equity,” Sejen says. “But before they can be more transparent about pay, employers will have to make sure their programs are designed, administered and delivered effectively.”
The study notes some actions employers can take including:
- Adopt a more holistic approach to making merit increase decisions that assesses not only an individual’s past performance, but also future potential and ability to contribute to a team.
- Conduct a pay equity analysis and develop an action plan to address pay equity issues.
- Improve communications in the area of rewards and base pay to increase transparency and enhance the perception of fairness. Using a multichannel approach, target communications about base pay policies to different workforce segments.
“The importance of effective employee communication around pay has never been greater,” adds Kate Van Hulzen, global practice leader in communication and change management at WTW. “Some states have adopted pay equity laws, and the CEO pay ratio disclosure requirements are likely to add fuel to growing concerns over pay equity and employee understanding. 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. This includes training managers on communication and ensuring they have the tools and resources to effectively communicate with employees about the basis for their pay opportunity and pay decisions.”
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