What is the meaning of fair compensation?
Being fair means that the compensation amount was impartially and honestly determined in an objective manner based on merit without any favor or prejudice.
Why is fairness and equitable treatment important to employees?
Research demonstrates that employees’ perception of fairness and equitable treatment is a core driver of retention, engagement and performance. In fact, unfair treatment is corrosive.
What is the impact of unfair treatment on employee retention?
Research demonstrates that employees’ perception of fairness and equitable treatment is a core driver of retention, engagement and performance. In fact, unfair treatment is corrosive. Just the perception that treatment is unfair can have devastating effects on the organization because it:
How does the perception of unfair treatment affect the organization?
Just the perception that treatment is unfair can have devastating effects on the organization because it: The perception of unfairness even drives people out of organizations.
Why is fair pay important?
A fair and transparent pay process boosts employee engagement even more than providing additional pay does, new research reveals.
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Can you pay low and expect employees to find out?
Given the availability of this information, "you can't pay low and expect employees not to find out," Martin noted. "When they do, you need to have an answer ready—even better if you communicate the compensation strategy before they find out."
Does SHRM offer legal advice?
SHRM provides content as a service to its readers and members. It does not offer legal advice, and cannot guarantee the accuracy or suitability of its content for a particular purpose. Disclaimer
How does unfair treatment affect the organization?
Just the perception that treatment is unfair can have devastating effects on the organization because it: Creates a climate of distrust and hostility. Erodes performance and employee commitment to the organization. Increases counter-productive work behavior. Reduces the willingness of employees to help each other.
How do employees perceive their reward package?
An employee may perceive whether their individual reward package is fair in terms of: The amount of effort the employee invests. The quality and impact of the employee’s performance. The education, experience and training the employee possesses. The content and complexity of their current role. The employee will also compare fairness relative ...
Why is fairness important?
For these reasons, it’s vital for organizations to ensure that their employee rewards are rooted in principles of fairness.
Why is employee reward important?
Employee Rewards: The Importance of Perceived Fairness. Perceived fairness of employee rewards (or the lack thereof) is often at the root of why employees leave organizations. The idea of fairness also determines if an employee will make an extra effort to reach organizational goals or even the objectives of his or her own job.
Is there a correlation between fairness and a benchmark?
While distinct, there is often correlation amongst the three types of fairness in the workplace. Deficiencies in any of the three can cause fairness gaps. It’s also important to understand that employee reward fairness concerns are typically relative to a benchmark or comparison point.
What is perceived pay fairness?
Perceived pay fairness begins with a new hire’s initial salary offer. The offer should be placed within the current workforce’s population and within market trends to maintain internal and external equity, respectively. HR should document if salary negotiation occurs or if any unique issues occur for future reference, if needed.
What is considered fair compensation?
Compensation will typically be perceived as fair if it is designed with a system of components including job descriptions, job analyses and evaluations, and pay structures. Ensuring that these elements are included when determining compensation plans is essential to maintaining internal and external equity.
What is HR responsible for?
If a pay audit reveals that compensation changes need to be made in order to comply with fair employee compensation legislation , HR will be responsible for helping implement them. A large part of their role will involve communicating these changes to employees and managing any issues that may arise following these changes.
Why do HR audit employees?
As previously mentioned, because HR deals with employee compensation directly, they are in the best position to bring up the topic of—and, in some cases, to conduct—a pay audit. HR will be instrumental in gathering the necessary paperwork for a legal counsel to conduct a pay audit and will likely be responsible for explaining differences in pay among employees based on the job descriptions, which exacerbates the importance of having proper job descriptions written for each position at your company.
What is compensation plan?
Having a well-designed compensation plan that ensures equity should be a high priority for all employers. Yet, a compensation plan should not be focused on the salary for a position. Compensation plans can, and typically do, include things like commissions, bonuses or merit pay, stock options and a comprehensive benefits package to complement a base salary.
What are the factors that determine fair levels of compensation?
Analyzing and evaluating job elements like safety risks, job stress, work schedule, autonomy and level of supervision are factors that play into determining fair levels of compensation. Often, this task involves comparing your company’s positions and evaluations with industry market data and adjusting both the position itself, ranking levels of each position (entry level, intermediate, senior) and pay grades, as necessary.
What is the best way to phase in compensation changes for both the employer and the employee?
Taking a thoughtful approach is often the best way to phase in compensation changes for both the employer and the employee.
What is fair and equitable salary administration?
First and foremost, fair and equitable salary administration is predicated on having accurate salary ranges that reflect the reality of the relevant outside labor market over a given period of time which is typically for a budget year. Without such salary ranges, effective administration of salaries is very difficult to attain.
What does "paying for performance" mean?
Paying for performance means that the compensation amount was determined by a thorough analysis of specific performance results wherever possible, rather than a subjective evaluation by the supervisor. Lastly, external equity means that the compensation amount is comparable to others doing the same type of work in the relevant outside labor market, ...
What is merit increase?
The total amount of merit/salary increase for any one employee should be based primarily on performance, with additional consideration for any external inequity as represented by his/her position in the salary range and internal inequity when he/she is unfairly compensated in comparison to lesser performing employees in the same position.
What department should HR work closely with?
6. HR Compensation department should work closely with the Finance department to ensure that monies provided by their merit/promotional salary guidelines fit within the company's financial/budget plan.
What happens if compensation is not fair?
In the end, if a lot of employees feel that their compensation is not fair or equitable, the benefits of various HR programs, such as on-boarding, recruitment, engagement, leadership, management training and skills developments, are likely to be greatly diminished. Any compensation plan, whether it is for salary or bonus administration, ...
What is the assumption of HR programs?
However, all HR programs rely on one key assumption - that the majority of employees feel that they are being fairly compensated in relation to the performance results they have achieved and their pay level is equitable both internally with other employees in their job and externally with the outside labor market.
When are bonus and salary considered total cash compensation?
For management and executive personnel, salary and bonus amounts are considered together as "total cash compensation" when determining whether an employee's pay level is fair and equitable.