Just over half of U.S. employees believe they are being paid fairly compared with workers who hold similar jobs either at their own or other companies, according to the 2016 Global Workforce Study by Willis Towers Watson, a leading global advisory, broking, and solutions company. At the same time, a companion survey of U.S. employers found that barely half of them have a formal process in place to ensure compensation fairness, an indication that employers have significant room for improvement.
The Global Workforce Study, a survey of 31,000 employees worldwide including 3,105 from the U.S., found that while 53% of employees believe they are being paid fairly compared with others in similar roles in other companies, 24% disagreed. Likewise, 55% of respondents feel they are paid fairly compared with people in their organization who hold similar jobs, but 22% disagree.
“Pay equity is rapidly becoming a high priority for employers, especially with base pay continuing to be the most frequently cited reason employees choose to join or leave an organization,” said Laura Sejen, managing director, Talent and Rewards, Willis Towers Watson. “For employers, there is much at stake and also room for improvement. Employees’ perception that they are paid fairly is closely linked to their engagement, which, in turn, drives overall productivity and, ultimately, financial performance.”
So far, many employers have not laid the ground work to ensure employees are paid fairly. The 2016 Global Talent Management and Rewards Survey, a survey of more than 2,000 companies globally, including 441 from the U.S., found only half of employers (52%) have a formal process in place to ensure fairness in compensation distribution.
The Global Workforce Study also measured whether employees understand how their base pay is determined and how their total compensation stacks up compared with others. Only about two-thirds of employees (65%) say they understand how their salary is determined, and less than four in 10 employees say they understand how their total compensation compares with that of the typical employee in their organization (39%) and with the typical employee in other companies (34%). When organizations begin to report on the CEO pay ratio and the pay of the median employee, these employees will not have the context to properly interpret those numbers.
“Employers will also have to address the growing need for more pay transparency, given the increasing expectation of openness regarding pay and pay equity. It’s becoming much easier for employees to gather salary information from online sources and learn what people with jobs similar to theirs are earning,” observed Sejen. “But before they can be more transparent about pay, employers will have to make sure their programs are designed, administered, and delivered effectively.”
Employers seem to recognize that the design of their pay programs is part of the problem. More than four in 10 employers (43%) have already taken steps, or are either planning or considering initiatives to change the criteria for base pay increases. But survey results found companies tend to hold managers at least partly responsible as well.
Less than four in 10 (39%) said their managers execute their base pay programs well and about a quarter (26%) disagreed with the statement that managers are effective at fairly reflecting performance in pay decisions.
“The importance of effective employee communication around pay has never been greater. Some states have adopted pay equity laws, and the CEO pay ratio disclosure requirements are likely to add fuel to growing concerns over pay equity and employee understanding. Employers should take this opportunity to conduct analyses of both external market competitiveness and internal fairness, and develop an action plan to address pay equity issues. This includes training managers on communication and ensuring they have the tools and resources to effectively communicate with employees about the basis for their pay opportunity and pay decisions,” said Kate Van Hulzen, global practice leader, Communication and Change Management, Willis Towers Watson.
About the Surveys
The Willis Towers Watson Global Talent Management and Rewards Survey was conducted from April to June 2016 and includes responses from 2,004 companies worldwide, including 441 companies from the U.S. The participants represent a wide range of industries and geographic regions.
The Willis Towers Watson Global Workforce Study covers more than 31,000 employees selected from research panels that represent the populations of full-time employees working in large and midsize organizations across a range of industries in 29 markets around the world. It was fielded online during April and May 2016.