For Pay, ‘Fairness’ Is Key to Contentment

By Stephen Miller Jun 28, 2010
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SAN DIEGO—When it comes to pay, “most employees will never admit that they’re satisfied. But the perception of fairness goes a long way toward ensuring that they’re not actively dissatisfied,” which can mean the difference between an engaged and productive workforce vs. one that’s full of gripes.

That theme was sounded by Beverly N. Dance, SPHR-CA, founder of Dance Associates, an HR consultancy in Oakland, Calif., during a two-day intensive workshop on “Base Compensation” held here June 26-27, 2010 in conjunction with the SHRM Annual Conference.

Achieving fairness requires a pay system that looks at internal equity (what employees bring to the company and how they’re rewarded) and external equity (market pay among companies competing for the same employees), Dance explained. Internally, she advised developing a process for documenting and analyzing differences in relative worth among jobs, with HR and line manager input. Externally, salary surveys come into play.

“Use a minimum of three surveys,” Dance advised, to avoid high and low outliers, and “choose surveys that include a minimum of 10 organizations as close as possible to your firm geographically.” Remember to “age” the data from the salary date to account for wage inflation, typically 1 percent per quarter—but bear in mind that many companies froze workers’ pay in 2009.

“Save on survey costs by being a participant,” Dance recommended. “By filling out the questionnaire, you’ll also get a sense of how accurate the survey results are likely to be.”

Rewarding Performance

A typical pay structure develops minimum, midpoint and maximum ranges for executive, professional and hourly (nonexempt) workers, with supervisors determining merit increases based on employee performance.

To create a system that’s accurate and fair, “train supervisors in performance appraisal and feedback skills, Dance said. “Use a wide range of increases to differentiate performance levels.”

One problem she’s seen recently is salary compression, which occurs when pay spreads are small. “It results from an organization’s failure to raise pay range minimums and maximums,” she noted. As a result, stronger, better qualified employees are likely to leave for greener pastures—your competitors—as the economy improves. A related challenge occurs when highly qualified new hires are brought onboard with salaries lower than less-qualified but longer-tenured workers.

Solutions point back to having a pay system that’s responsive to internal and external equity, and to keeping the plan current. To resolve inequities that may have developed, communicate to better-qualified employees that their salaries will be raised when money becomes available, and then follow through and “open the purse strings. Otherwise you’ll forfeit their trust,” Dance cautioned. In the meantime, merit bonuses for high-performers and one-time bonuses for the best-qualified new hires can help smooth over negative feelings about base pay unfairness.

Tracks and Ladders

Longer-term, employers should also consider formalizing career tracks within the organization and establishing job ladders that allow individuals to advance step by step as their proficiency increases (a career track can have more than one job ladder).

One advantage of this approach is that it allows employees to choose whether they want to devote their time and effort to increasing their skills to the level required for advancement, or whether they prefer to balance work/life for more time for family or outside pursuits. However, Dance noted, career tracks and ladders may be more suitable for some fields—such as information technology and engineering—than others.

Wage & Hour Issues

Speaking of work/life issues, Dance advised employers to “beware the case of the runaway BlackBerry” among nonexempt workers. If hourly workers are required to use a BlackBerry or other device after hours and during vacation time, the use should be “de minimis” (the legal term for “minimal”) or else employers are required to pay overtime. So what constitutes “de minimis” use? The answer isn’t clear, although the distinction between “a couple of minutes” vs. 20 minutes could prove significant.

Surviving a DOL Audit

If you are audited for wage and hour violations by the Department of Labor (DOL), Beverly N. Dance, SPHR-CA, founder of Dance Associates in Oakland, Calif., recommends employers

  • Be nice.
  • Don’t give them anything more than asked for.
  • Put the DOL auditors in a separate conference room.
  • Watch them so they don’t go where they don’t belong, such as the lunch room or HR offices.
  • Don’t involve the company attorney directly with the DOL auditors unless absolutely necessary (their propensity to take an adversarial stance can backfire).

“Keep your eyes on the courts” and on the Department of Labor (DOL), which has stepped up its enforcement of wage and hour violations, Dance advised, noting that 60 percent of DOL audits originate because of employee complaints—“somebody was unhappy and made a phone call.”

Which points again to the value of having a pay system that’s viewed as “fair.”

Surviving a DOL Audit

If you are audited for wage and hour violations by the Department of Labor (DOL), Beverly N. Dance, SPHR-CA, founder of Dance Associates in Oakland, Calif., recommends employers:

Be nice.

Don’t give them anything more than asked for.

Put the DOL auditors in a separate conference room.

Watch them so they don’t go where they don’t belong, such as the lunch room or HR offices.

Don’t involve the company attorney directly with the DOL auditors unless absolutely necessary (their propensity to take an adversarial stance can backfire).

Stephen Miller is an online editor/manager for SHRM.

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