If you want a workforce that is engaged, the employees must be fairly paid. This is one of the leading trends that consistently comes out of research on employee experience and engagement. The key word here is fairly paid. They do not have to be the best paid, but merely fairly paid. So, if the going rate for a job is $50,000 and you pay someone $25,000, they know they are not fairly paid. They might take the job for a while as they have bills to pay, but they are not going to be happy and stay for the long term. They know their employer is not treating them fairly.
The research also indicates that the reverse is true, you can overpay somebody, but if they work in a toxic work environment, they will not stay. So, if they work in a workplace where their boss is a tyrant and treats everyone badly, it does not matter if you pay them $75,000 for a job that is worth $50,000, they will still leave. However, if you pay them fairly, $50,000 for a $50,000 job and provide a positive working environment, most employees are happy to stay for the long term. However, so many employers get this policy wrong and try to pay employees more to stay in a bad environment, rather than try to fix the bad environment. So how can a business ensure that it pays its employees fairly?
Hiring – pay for capability, not last drawn salary or expectations
Coming up with an offer is actually incredibly straightforward. If Employee A has been robustly and accurately assessed and is shown to have average levels of capability for the relevant job, then they should be offered an average salary at the relevant banding. So, if the banding is $80-100k, the person should be offered 90k. They still have some room to grow and develop, before they get to the top of the band and the next promotion. If the person is newly promoted to the level of role and has say 25% of the required capability and performance history, then they would receive circa $80-85k. If they were assessed to be one of the best employees for capability and performance, then they should be closer to $95-100k.
If you have assessed a person and they should be at $95k, then you offer them $95k. It does not matter if the person is currently on $70k and has said they will accept $80k. Pay them what they are worth, not what you think you can get them for. If you offer them $80k even though they are worth more, they are only going to be happy until they realise, they are better than their peers and paid less than them.
Pay review – link pay to performance
Research has comprehensively proven that the highest performing organisations reward their employees based on team goals, not just individual goals. Despite this, less than one third of organisations operate in this manner. In addition, only half of organisations set goals at a business unit level as well. So, if no goals are being set in 50% of firms at a business unit level, how can performance even be assessed? This is why a significant number of employees feel unfairly treated when it comes to deciding end of the year pay rises and bonuses. As far as they are concerned, they have done a great job, and should get a good pay rise.
To rectify this, there needs to be a significant shift in tying reward into performance. Proper goals need to be set and managers need to be assessed based on their ability to lead and get results. Issues like attrition, number of employees under them learning new skills, number of employees promoted under them and so on should all directly impact their pay and bonuses. Likewise, employees in non-management roles, if they do not deliver their goals, they should not expect a pay rise or a bonus. Such things should be earned by delivering valuable outcomes, not as an entitlement merely because you stayed with the company for 1 year. Likewise, if they have gone above and beyond expectations and not merely done their job, and delivered outcomes at a higher level, they should be suitably rewarded. However, without proper goal setting, there is no way for an employee to judge what is fair.