Having a pay raise process that employees see as fair has never been more important. One recent survey shows that 81% of employees are more productive when they feel their pay is fair. Let's look at 3 powerful ways make pay feel (and be) fair.
Provide Transparency
Having pay that really feels fair starts with transparency. The same survey we mentioned before found that 75% of candidates are more likely to apply for a job when they believe the company provides pay transparency. Pay transparency means openly communicating how much the company pays for a particular position. At a minimum, give candidates the true, realistic compensation (or reasonably narrow range) up front. For a best practice that impresses candidates, disclose how the company determined the compensation for the role. The additional information shared may include:
- Pay studies or other research on the market rate for the role.
- Credit assigned to experience or education.
- Adjustments for inflation or local cost of living.
- Boosts the company adds to attract talent over competitors.
Some or none of these may be appropriate, depending on the workplace. Greater detail creates a strong offer to candidates.
Have a Robust Raise Process
Fair pay and transparency continue at raise time. A little-known cause of unhappiness in the workplace is having a pay raise process that is not explained and followed—or a pay raise process that is not shared at all or does not exist. ADP reports that in 2023, 50% of U.S. employees believed they were underpaid. Periodic raises offer a great opportunity to reassure employees that they are fairly paid. Provide plenty of data for the employee, while keeping it clear and easy to read. Do it at least a month before the raise goes into effect. This data is best when it includes:
- A statement of how the company is doing and how that relates to the raise decision. For example, "Last year we were about 10% under our projected revenue, but we were 12% more profitable than expected. This created a small surplus that we chose to use to increase everyone's base pay slightly more over market rates."
- A description what the workplace is trying to achieve. For example, "at this raise period, our goal was to ensure your pay remains at least 10% over the market rate, adjusted for the cost of living where you live."
- A simple disclosure of the market rate for the role the employee is in. This should show the average pay for the position, and examples of amounts paid at lower and higher percentiles to the same role. Try to include a graphical chart because some people can understand pictures better.
- The adjustments or credits associated with the employee's level of experience, length of time with the company, and performance.
Above all, ensure that this package of information is not too complicated. While it is important that it is thorough, it should be easily understandable for anyone at the company. Aim for something written at a grade-school level. Avoid jargon (special words or expressions that are only used by some people and are difficult for others to understand). Where technical words or financial terms are needed, provide a definition alongside them. For example, if you say that you are giving an increase for cost of living because inflation around the country was 4% over the last year, explain that "inflation" means "an increase in the price of things everyone buys. We are saying that everything people buy went up by 4 cents for every dollar in price last year."
Seek and Destroy Pay Inequity
A recent survey from Gartner Consulting finds that only 32% of employees feel their pay is fair. That's a shockingly low number. A major cause of this low result is that employers do not do the things above in pay transparency and raise processes. Another major cause is when certain groups of employees are not provided all the same treatment when it comes to pay. This is sometimes called "pay inequity" and it is usually unintentional. As Gartner points out, many employers have pay equity issues because isolated areas of the company or certain managers do not follow the established process for setting compensation and raises.
Gartner recommends performing a pay equity study and then acknowledging what you find. It's common to find a gap between what men and women are paid, even in the same roles and for similar employees. The average organization’s gender pay equity gap is 8%. Organizations may have other pay equity issues that are not related to gender or a certain type of employee—still bad for employees feeling their pay is fair.
Once any gaps are found, make it a goal to eventually eliminate them. Tell employees about the pay gaps found and communicate how the workplace is acting to get rid of them. Employees admire a transparent, self-improving, and credible employer.
Now that we've discussed fair pay, you may want to know whether employees at your workplace are happy with their pay. Good news! Amazing Workplace has an Employee Happiness Survey that addresses pay, raises, other compensation, and dozens of other drivers of employee happiness. Email us at info@amazingworkplace.com or get started with our survey for free.