If there’s one thing you can rely on happening around the arrival of a new year, it’s that people seem to focus on the thorny issue of pay and bonuses (or occasionally the lack of them).
Whether it’s debate about the recent Fat Cat Wednesday (the so-called first Wednesday of the year, when top CEOs are calculated to have already pocketed more than the average worker earns in the whole year), or the price of rail tickets outpacing pay rises, pay is the annual hot topic that never seems to go away.
However, counter to what mainstream media might suggest, it’s my experience that people don’t actually mind it when their colleagues earn more than them. In fact, I would go so far as saying it’s not ‘high pay’ that’s the issue at all, it’s the way high pay is arrived at and that involves a much simpler emotion; whether employees believe ‘fairness’ has been used across the board. Although, fairness isn’t provable and is too emotive to be quantifiable, you can demonstrate that your policies are equitable.
In the same way that a long and fruitful marriage is built on trust, an employee’s continued buy-in to the psychological contract also needs trust as its foundation. Problems arise, however, when suspicions spread that ‘fairness’ isn’t always applied – especially around the awarding of annual performance bonuses. And believe me, as soon as this part of pay isn’t seen to be fair, that’s when trust begins to break down.
So why does this happen? Instead of remuneration committees being open and transparent and declaring a clear and unswerving reward strategy for driving a clear set of expectations (including setting out clear bonus bands to reflect demonstrable levels of performance), the whole process is still shrouded in mystery. The old cliché of bonus meetings taking place in smoke filled rooms, conducted in secret, still exists.
The trouble is, behaviour like this causes suspicion that one person’s performance bonus has actually very little to do with performance at all; that it has more to do with how well people get on with their line managers or whether they’ve got the bravery and/or the gift of the gab to talk up their future potential rather than their actual past performance. I suspect there is little more frustrating and demotivating than discovering a colleague, who’s performance you believe has been lower than yours, has received a bigger bonus.
By failing to be open and transparent about the policies and how they are enforced, organisations will fail to maintain trust. By comparison, a clear performance and reward policy, set out for all to see, means it can actually be a lever for the purpose of driving better outcomes for organisations.
And I believe that transparency and clarity shouldn’t just be there for internal audiences only. Why not publicly proclaim how performance, talent and pay are connected, and codified, to be a process that can’t be influenced by personality or being cozy with managers? Firms that explain their criteria in their annual reviews will find they don’t have to worry about what the likes of Glassdoor have to say about them (this is the website where current/former employees give their anonymous views about company culture). Being open means it’s all there in black and white. We even feel performance strategy should be promoted even wider – on job application material too – so everything is upfront and as transparent as possible from the very first point of contact they have with people. This will be good employer branding if nothing else.
In my experience in working with countless organisations over the last 30 years is that employers who are transparent have greater levels of engagement and trust; this manifests itself as lower churn of key staff, higher productivity and greater job satisfaction. Part of the problem is that reward teams are usually so busy in just administering the process that they are not focusing on the actual outcome and the desired business effect of the pay and bonus review.
What’s so frustrating is that being transparent is not difficult. Firms that have nothing to hide can clearly and concisely promote the fact that everyone is treated the same against the same set of rules. By promoting this, they are also saying they’re prepared to be accountable for that. Legislation will soon require firms with more than 250 employees to explain differences in gender pay, including performance bonuses. But gender pay is actually a complex area and won’t always show firms with equal pay policies in a good light because the reporting will include part-time work and reduced hours work. We say it’s far better to start with something that’s simple and can be understood by all – a transparent, not opaque, formula that explains differences in pay, but which doesn’t preclude people from aspiring to new bonus levels – just so long as they perform. You can’t say fairer than that, can you?