By Bruce L. Katcher, Ph.D. President, Discovery Surveys, Inc.

Less than half of employees think they are paid fairly compared with
people in their own organization who hold similar jobs.

A few years ago the operations group of a small airport hired me to improve employee morale. This 150-person department managed the grounds, security, and maintenance of the airport facilities.

The majority of the employees were unionized. One common complaint was how they were paid. A maintenance employee working on a team responsible for taking care of the grounds complained, "Although I've only been working here a short time, I work harder and do a much better job than anybody else here, but I’m paid far less."

A member of the rescue squad had a similar complaint. "The people on our squad who have been working here the longest do the least amount of work,” he told me. “They come to work late, leave early, and take hour-long coffee breaks, yet they make the most money because of their seniority."

When I pointed out to them that their union had negotiated this pay-for-seniority arrangement, they just shrugged their shoulders and said it was still management's fault.

Another client, a retail organization, had a related problem. One of the sales people on the floor complained to me, "I've been working here for 3 years and make virtually the same as new employees." (This is called "pay compression.")

THE PROBLEM

Employees want to believe that their good performance is recognized by management and appropriately compensated. Most don't want all employees to be paid the same. Instead they want the best performers to be paid the most. However, most if not all, believe they are among best performers in their group.

The problem is that when employees feel they are not paid fairly compared to others performing the same work in their organization, they become resentful of the organization and their coworkers. They think to themselves, "That lazy SOB in the next office makes the same as I do. Why should I work harder when I'm not going to see it in my paycheck?" These thoughts are not good for employee morale or for maintaining a motivated workforce.

Although many organizations would like to pay employees performing the same work differently, that’s often very difficult. Here are some reasons why:

1. Measuring Performance is Not Easy

   It is often difficult to measure job performance. One must usually rely on the subjective ratings of supervisors, which may be biased and are often not comparable to those of other supervisors.

2. Employees Distrust Management

   Employees don't trust supervisors to properly differentiate between the good and the poor performers. They thus ask their union to negotiate across-the-board pay raises or raises based solely on tenure.

3. Management Doesn't Want to Make Waves

   Organizations find it much easier to pay everyone performing the same job equally. This way they don't have to worry about accurately measuring performance. They also believe this approach will be easier to sell to employees. They can say, "Look, you're all part of the same team and we want to pay you the same since everyone needs to contribute equally to the team."

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THE UNDERLYING PSYCHOLOGY

Using the principles of "equity theory" social psychologists predict that employees will most likely do one of two things when they believe they are receiving the same outcomes (e.g., compensation) as those working at the same job but performing poorly. They will either reduce their own job performance so that there is more equity, or leave the situation. Neither of these solutions are good for the organization.

WHAT TO DO

1. Widen Pay Ranges

   The "pay compression" problem is a common one. In order to attract employees to join an organization, publicly advertised starting pay rates are relatively high. This annoys job incumbents because they see that new employees are earning the same or almost the same as they are earning. Expanding the salary range can help.

2. Avoid Paying by the Hour

   Paying by the hour makes little sense for most jobs. Here's why:

   • Employees spend more time looking at the clock than they do focusing on achieving tangible results. Employees develop ingenious and often unethical approaches to stretching their work into the full 8 hours even if it can be accomplished in far less time.

   • Employers spend time looking at the clock as well. Wouldn't it make sense for employers to be focusing on the accomplishments of employees rather than how long they spent hanging around the office?

   • If paid by the hour, the faster and smarter employees work, the less money they will make. Does that make any sense?

   If you pay be the hour, you will be paying primarily for attendance and will not be able to compensate people differently based on their performance.

3. If Possible, Keep Pay Levels Secret

   There is no need to make individual pay levels public. It's really nobody's business how much their coworkers are being paid. Unfortunately, in unionized and government organizations, pay levels are out in the open. However, many organizations can control what information is shared with employees and what is not. Keeping individual pay levels secret is the best policy. It can help minimize resentment. Employees, of course, may tell each other privately what they are paid, but this is unusual.

4. Don't Stop Trying to Pay for Performance

   Don't give up on properly measuring the performance of employees. Continually refine how you evaluate their performance, involve employees in setting performance goals, and train supervisors how to use the performance review process.

CONCLUSION

Employees want to feel that they will be paid more than their coworkers if they perform better for the organization. Do your best to make sure this happens.