Increasing Pay Satisfaction Without More Compensation Spending

by: Mike D’Amico

Many managers have had to deal with an employee complaint about pay. Compensation can be a contentious issue, so managers frequently turn to HR to figure out how to give a salary increase to a valued employee.

Yet this is often unnecessary and could probably have been prevented at no cost to the employer. Surprisingly, employee dissatisfaction with compensation is frequently not about a figure on a pay cheque but rather perceptions of unfairness or inequity.

Consider a recent graduate who is thrilled about his new job and can’t believe he is being paid a salary of $50,000 a year. He couldn’t be happier!  That is until he discovers that another recent hire, doing similar work, is paid $58,000 a year.

Suddenly the salary that had him thrilled is now causing dissatisfaction. He wonders if his manager took advantage of his weaker negotiation skills. He wonders if the other employee is a ‘buddy’ of the manager who received preferential treatment. All he knows is he is not being treated fairly and this impacts his satisfaction with his compensation, his job and his employer.  Now there’s a potentially costly management headache!

However there are often valid reasons for one employee to be paid more than another for a similar job. Perhaps the higher paid employee has more years of relevant experience. Maybe she received credit for previous student work terms with the company or for a certification or advanced degree that she holds.

It is the perception of unfairness that causes dissatisfaction. So the single most important thing an employer can do to mitigate this is to have transparency around compensation programs. If you have a sound compensation system that follows good business principles and is supported by effective processes, there is no reason not to openly communicate this to your staff.  In fact, you should make a point of it.

When employees understand how their compensation is determined and see that the same principles are applied to everyone in the organization, you will have addressed the majority of potential employee compensation satisfaction issues. The icing on the cake is that it will also save the organization money by avoiding unnecessary (and unwarranted) pay increases.

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