Walking the pay parity line

How much someone is getting paid is often a tightly guarded secret. But workers naturally get curious and eventually they start whispering at the water cooler. And those whispers could drop a bombshell.

Salary disparities among team members are not uncommon given the way workers are quickly changing jobs in the tight labour market.

John Robertson of John Robertson and Associates - which provides employee climate/culture surveys - says the perception of fairness surrounding pay and benefits is more important than the actual pay and benefits themselves.

"If, for example, there is a perception that there is a lack of internal fairness or if there is a perception that there is a lack of relativity compared to other organisations outside, then that is going to have a significant influence on people's attitudes to that organisation as a place to work."

The internal pay parity of a company can easily be disturbed, particularly when organisations find themselves in a pinch. Perhaps the only job candidate you like requires $5000 or $10,000 more per year than you had originally planned to pay. It could easily cost that much to re-advertise, re-interview and pay the temp for the additional time. But Robertson says going for the quick fix can be dangerous.

"What we can predict is that if that situation occurs ... we can say with some confidence that you're going to have quite a large number of disaffected employees. A number of employees that are going to be feel negatively about the organisation because they will perceive that the salary system is not fair when it pays somebody else doing the same job a lot more than you're being paid."

Salaries can get out of kilter for a number of reasons including seniority, experience, education and performance. But for an organisation which has not measured up its remuneration package against the outside world in a long time, the reality check can be a shocker.

"That is quite a common situation that an organisation, if it's been fortunate enough to avoid the need to be going to the market, you know 'we haven't had to replace anybody for a while' and then suddenly somebody leaves and you suddenly find that you're pay system has become out of line with the market. There is no easy solution. You can try and hush it up, but that sort of policy certainly doesn't last for very long. "What happens is somebody comes on board on a $10,000 salary higher than you're earning - that's immediately telling everybody else in the place that that's the market rate for their job.

"The first thing they're going to do if the employer doesn't try and address that problem is go out and see if they can attract that sort of money in the market thinking 'if you're not prepared to pay it to me then maybe somebody else will'."

Research and common sense tells us that people can be prickly when it comes to comparing their pay packet with others.

"We have plenty of quantitative evidence that would prove that those sorts of inequities, that sort of perceived unfairness in respect to the pay system, will have a significant impact on people's sense of engagement in the organisation."

But Robertson says that salary comparisons can also have a positive impact on an employee.

"Perceptions around the fairness of pay and benefits is an important driver of people's overall perceptions of the organisation they work for, and that works both in a positive and a negative sense."

A positive perception of the fairness of one's pay can compel people to have a more engaging work life.

But Robertson says that if you do find that when you go to the labour market and discover that your organisation is not in line with other salaries being offered, then it can be a sobering reality check.

"There is no magic solution there. I think if you do that, in other words, if you find that when you go to the market, that the salary you're having to pay to attract a new person make your existing salaries look a bit off the pace, then you need to deal with that because obviously, if that becomes widely known that there is that significant disparity then that will be seen as being unfair."

Interestingly, if a situation arises where workers feel that they have been treated unfairly and their pay and benefits are not up to scratch, the answer might not be to increase wages.

"If an organisation finds, for example, that there is a wide-held feeling within the organisation that as a result of say, doing an employment survey, that there is a perception that the pay and benefits are not fair then the first thing I think to be done is to ensure that people have a sound understanding as to how their salary and benefits are determined and how those salaries relate to the marketplace."

This is a matter of correcting the employee's perceptions of their pay and benefits.

"So the process of education, rather than just suddenly paying people more money, the process of educating people as to how salaries are determined and how the company's salary policy related to the market, that ought to be sufficient to correct incorrect perceptions as to the fairness of the pay and benefits policies that apply."

And then there are the other benefits which employees perceive from working for an organisation besides their remuneration package.

"What our research would indicate is that things like people's sense of whether there is a future for them in the organisation; people's sense of whether the organisation is a fun place to work, people's sense of if whether the organisation is making full use of their knowledge and skills, those things are, in fact, relatively speaking, more important than perceptions around the fairness of pay and benefits."

But Robertson says these feel-good factors such as whether workers feel a strong sense of belonging to the organisation is no defence against hiring someone from the outside and setting their salary significantly above the existing team.

"If you're having to pay that much more to attract someone of sufficient calibre to the organisation and you've got people who are just as good or better and you're paying them a lot less - that is not a situation that is going to be stable."

If the situation has already occurred and the cat is out of the bag with the other employees, Robertson suggests that the only real thing you can do is front up.

"You might not be able to fix it immediately. But I think at the very least, probably as an organisation what you're going to have to do is not try and fob people off, but actually acknowledge that it's a problem. Explain perhaps why it can't be dealt with immediately. But at least acknowledge it and indicate a willingness to resolve it in the medium to long term."