New data published by the CIPD this week has highlighted the need for people professionals to pay closer attention to both real and perceived fairness when it comes to what people in their organisation are paid.

The Reward Management survey suggests some employers may be over-relying on ill-equipped line managers to talk to their teams about pay processes and outcomes, resulting in a disconnect between people professionals’ perceptions of pay in their organisation and what the rest of the workforce experiences.

In particular, the report highlights that:

  • 75% of HR respondents think all (or the majority) of people in their organisation are paid fairly, but only 33% of all workers (or 34% of permanent workers) agree. Likewise, HR respondents are more likely (86%) than the rest of the workforce (20%) to agree that their chief executive is paid ‘about right’.
  • Half of HR respondents say line managers have full or moderate involvement in communicating with staff about pay, but more than three-fifths of employees say they’ve never had an explanation from their manager about why they’re paid what they are.
  • Among employees who have received an explanation from their line manager, 60% say their manager had done a poor or very poor job of communicating.
  • Of those employers whose line managers play a role in making decisions about employee pay, only 38% assess the effectiveness of them in this role.
  • 60% of HR respondents claim that their organisation talks about fairness of pay processes and outcomes, but only 30% have a clear definition of fairness and just 10% of staff say their line manager ‘always’ or ‘often’ speaks to them about fairness.
  • Few employers survey their employees to check whether they think pay processes (23%) and outcomes (25%) are fair and just 38% encourage line managers to talk to staff about the fairness of both pay processes and outcomes.

The good news for people professionals is that, in some cases, the solution could be as simple as supporting line managers to improve communications about pay. It’s perhaps unsurprising that so many employers’ well-meaning efforts to reward people fairly are not living up to employee expectations when you consider that only half of employers communicate how pay increases are decided, how pay structures work, and what staff need to do in order to get a pay rise.

However, the report also reveals some concerns when it comes to the realities of fair pay:

  • Just a quarter of employers say that sharing the success of the organisation with employees, and being seen to be fair while supporting the purpose and values of the organisation, are key influences on their pay policies
  • In terms of external factors influencing pay policies, just 8% of respondents cited pressure from customers or investors to be fair
  • Only 39% of employers have carried out an equal pay audit in the past three years to ensure they are complying with the law.

Off the back of the new report, the CIPD has the following top tips for the people profession, to help improve real and perceived fairness around pay processes and outcomes.

Ensuring pay really is fair:

  1. Evaluate pay fairness by auditing actual pay outcomes. This helps shed light on the fairness of decisions made around pay, as well as other employment decisions influencing pay progression (such as recruitment practices or flexible working policies).
  2. Ensure you’re paying your staff a liveable wage. This will not only help reduce money worries (a key driver of employee stress that can have a detrimental impact on well-being and productivity), but it will also help improve perceptions of fairness as the survey revealed – perhaps unsurprisingly – that those earning less than £20,000 are significantly less likely to think their pay is fair.
  3. Ensure staff know what they need to do to get a pay rise (less than half of employers currently do this) and explore ways to boost productivity that will enable your organisation to sustain wage increases – for example, by reviewing organisational design and job roles, and looking for opportunities for improvement.

Managing perceptions about fair pay:

  1. Seek input from key stakeholders, including employees and investors, to develop a clear definition of fairness. Share this definition with managers and employees to foster an agreed understanding about what ‘being fair’ looks like.
  2. Make sure staff understand what the organisation expects from them, why it wants it, and how it will reward and recognise their efforts – less than half of employers surveyed currently explain to employees what they need to do to increase their pay.
  3. Support line managers to have meaningful conversations with their teams about the fairness of pay processes and outcomes.

New corporate reporting requirements which come into full force in 2020 are likely to reveal further opportunities to improve fairness in pay processes and outcomes. Publicly listed companies with more than 250 employees are required to report the pay ratio between their CEOs and full-time workers on the 25th, 50th and 75th percentile* and to explain how the pay-setting process for top executives compares with their pay policy for the wider workforce. Separately, they’re also required to demonstrate how they take employee views and interests into account in business decision-making, including views on how people are paid.

The CIPD is urging employers to seize the increased public and board-room scrutiny this will bring as an opportunity to push their people strategies up the corporate agenda and review not just CEO pay policies, but pay and culture across the workforce. It suggests that one way to do this is to broaden the remit of remuneration committees, making them ‘people and culture committees’ with responsibility for ensuring that reward practices across the organisation incentivise behaviours that are in the long term interests of individuals, businesses and the societies they operate in, and that organisational culture more broadly reflects the company’s core purpose. It warns that companies who continue to ignore concerns about poor corporate governance risk losing staff, customers and investors in the long-run.

* In other words, the company must rank employees from highest to lowest paid and identify the 25th, 50th and 75th highest remuneration, and then compare this with the remuneration of its CEO.

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