For managers and employees to gain an accurate view of the pay system—one that perhaps influences their attitudes about it—they need to be informed.
Of course, one might observe that increasing the accuracy of employee perceptions through pay openness is most useful in cases where the compensation system is well-designed and will be perceived as fair and credible by employees. In that case, from a motivational point of view, it would certainly make sense to communicate and demonstrate to employees that those with consistently high performance receive higher compensation including via more promotions than others.
The lack of pay knowledge among employees discussed above now becomes easier to understand. Finally, it is important to keep in mind that a pay secrecy policy in private sector organizations may be illegal. WorldatWork, May This makes it impossible for an employee to know he or she is being underpaid compared to his or her peers. If compensation remains hidden, employees who are being unfairly paid less because of their gender or race will remain unaware of the problem and will be unable to exercise their rights by filing a complaint pursuant to the Executive Order.
The second and related reason for communicating pay information is that, according to some research, employees seem to misperceive the pay system. For example, they tend to overestimate the pay of those in lower-level jobs and to underestimate the pay of those in higher-level jobs. They assume that the pay structure is more compressed than it actually is. If differentials are underestimated, their motivational value is, as noted above, diminished, because they underestimate the payoff to high performance. Further, there is some evidence to suggest that the goodwill engendered by the act of being open about pay may also affect perceptions of pay equity.
Interestingly, the research also shows that employees in companies with open pay communication policies are as inaccurate in estimating pay differentials as those in companies in which pay secrecy prevails. However, employers in companies with open pay policies tend to express higher satisfaction with their pay and with the pay system.
Data from national U. So, an employer must be prepared to address that consequence. However, an employer will also want to consider who is dissatisfied and why. To the degree that pay is based on performance, being more open with pay could result in positive sorting effects over time to the extent that it is low performers who are dissatisfied and they leave and are replaced by higher performing employees.
A laboratory study found some evidence that more open pay not only had positive incentive effects on performance especially when performance was measured in relative terms , but also that there were positive sorting effects of the type just suggested.
In the case of benefits too, communication plays a potentially important role. We know that employees greatly underestimate the value of their benefits, which is a major concern given that benefits add roughly 40 cents on top of every dollar spent on cash compensation. Is it to change performance expectations? Or is it to help employees make informed health care choices? While specifying objectives as a first step seems obvious, doing so is often overlooked in the rush to design an attractive brochure, website, or CD. Information may be gathered through online opinion surveys and focus groups to identify problems in understanding the compensation system.
There is no standard approach on what to communicate to individuals about their own pay or that of their colleagues. That includes consumer attitude surveys about the product, snappy advertising about the pay policies, and elaborate websites expounding policies and rationale.
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The objective is to manage expectations and attitudes about pay. The marketing approach focuses on the strategy, values, and advantages of overall policies and may be silent on specifics such as range maximums, increase guides, and the like. The message can be fine-tuned, depending on the audience. Executives, for example, should be interested in how the compensation programs fit the business strategy. Managers need to know how to use the development and motivation aspects of the compensation program for the people they supervise. Employees may want to know the processes and policies as well as specifics about how their pay is determined.
The danger is overload—information is so detailed that employees get snowed under sorting through it. Did it accomplish its goals? Pay communication often has unintended consequences. Over the years, employees may have rationalized a set of relationships between their pay and the perceived pay and efforts of others. Receiving accurate information may require that those perceptions be adjusted. How can you judge the accuracy of information obtained on the Web? How would you deal with the unhappy employee? As noted above, if the pay system is not based on work-related or business-related logic, then the wisest course is probably to avoid formal communication until the system is put in order.
Employees are constantly getting intended and unintended messages through the pay treatment they receive. Some also communicate the typical pay increases that can be expected for poor, satisfactory, and top performance. However, as we saw just above, employee pay knowledge is often quite limited. There are some who advocate going beyond the sharing of pay information to the sharing of all financial information with employees.
Some are even providing basic business and financial training to help employees better understand the information. Devotees of opening the books and providing financial training believe these methods will improve attitudes and performance, but there is no research to support this. With salary data available on the Internet albeit often inaccurate and misleading , developing in-house compensation portals has appeal. At the minimum, the most important information to be communicated is the work-related and business-related rationales on which pay systems are based.
Some employees may not agree with these rationales or the results, but at least it will be clear that pay is determined by something other than the whims of their supervisors. Compensation professionals seem to be constantly reevaluating where within the organization the responsibility for the design and administration of pay systems should be located. The organizational arrangements of the compensation function vary widely. An important issue related to structuring the function revolves around the degree of decentralization or centralization in the overall organization structure.
In such cases, compensation professionals are increasingly likely.
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Typically, corporate will retain some number of compensation professionals, perhaps in what is known as a center for expertise. This group provides an internal consulting capability that human resource professionals in the business units, who are often human resource generalists, can be drawn on to assist in the design of compensation strategies.
The mix of corporate and business unit compensation expertise is a balancing act. Too big of a corporate group risks becoming out of touch with specific business unit needs. Over time, it is not unusual to see the pendulum swing within companies back and forth between more or less centralization. Other, more decentralized organizations, such as Eaton and GE, have relatively small corporate compensation staffs.
Sometimes, their primary responsibility is to manage the systems by which executives and the corporate staff are paid although GE corporate compensation drives the salary planning process company-wide. These professionals may operate in a purely advisory capacity to other organization sub-units.
The subunits, in turn, may employ their own compensation specialists.
Or the subunits may choose to employ only personnel generalists rather than compensation specialists and may turn to outside compensation consultants to purchase the expertise required on specific compensation issues. AES, an electric power company, has no compensation unit at all. Compensation functions are handled by teams of managers. Decentralizing certain aspects of pay design and administration has considerable appeal. Pushing these responsibilities and expenses close to the units, managers, and employees affected by them may help ensure that decisions are business-related.
www.abs-ufa.ru/includes/2791.php However, decentralization is not without dilemmas. Also, we have seen time and again that decentralization, which by definition includes less direct control of what managers do, can contribute to legal problems. The answers to these and related problems of decentralization can be found in developing a set of corporatewide principles or guidelines that all must meet. The principles may differ for each major pay technique. Keep in mind that the pay system is one of many management systems used in the organization.
Consequently, it must be congruent with these other systems. For example, it may be appealing, on paper at least, to decentralize some of the compensation functions. However, if financial data and other management systems are not also decentralized, the pay system may be at odds with other systems.
Value chain analysis and Six Sigma are processes used to improve quality and ensure that value is added by each technique and at each stage in a process. Or should it be dropped? That is, should it be outsourced? Outsourcing is a viable alternative as organizations struggle with activities that do not directly contribute to objectives. These are often referred to as transactional activities, which are not unique to the organization and might be done cheaper and perhaps also better by an outside provider. On the other hand, more transformational or strategic activities e.
Cost savings are the major potential advantage of outsourcing. Sometimes, the quality of the service provided may increase also. A firm that does nothing but administer retirement benefits may be able to do a better job than a firm whose primary business is something else e. Major potential disadvantages include less responsiveness to unique employee—manager problems, less control over decisions that are often critical to all employees i. In addition, as with any contract, while an agreement may be signed stating that an outsourcing firm will provide a certain set of services and at a certain level, either side may subsequently find that their vision of the agreement and their experience of what is actually delivered may end up being different.
Some recommend reducing the controls and guidelines inherent in any pay plan.
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