We heard a lot before the last general election about ‘fairness’ in society, with the manifestos of all three main political parties positioning themselves as its standard-bearer, and the original coalition agreement being peppered with references to it. Despite regular allegations since then as to the unfair and disproportionate effect of the government’s deficit-reducing measures on particular groups in society – women, the poor, families, public sector workers – it was interesting to see all three party leaders returning to the theme in their new year messages at the start of this week.
Nick Clegg refers to “helping people get through these difficult times with measures to make life fairer”. While also recognising the tough economic climate and pressure on our living standards, the Prime Minister writes of curing “the problems of our society (that)… a few at the top get rewards that seem to have nothing to do with the risks that they take or the effort they put in,” promising still to “tackle excess in the City”. And Ed Miliband similarly emphasises “a fairer sharing of rewards so that we discourage irresponsibility at the top and the bottom of society,” and remove “the unacceptable inequalities that scar our society”.
In the workplace, the latest CIPD study of employee attitudes shows most of us aren’t happy with our pay, or perhaps more dissatisfied than ever, helping to explain declining levels of employee engagement. The usual employer justification for growing reward differentials, that we need to pay for performance, is getting thrown back in our faces, with only 19 per cent of employees feeling that their pay really reflects their performance.
Over the festive break, I finally managed to read Will Hutton’s excellent Them and Us, a manifesto for fairness as a fundamental organising principle of our society and organisations. He argues persuasively that sustained economic growth only occurs where people get their “just deserts”, being rewarded individually in relation to their effort and performance, but also, crucially, with an acceptable sharing of the risks and rewards in society. Pay levels are not set by totally impersonal market forces but need to be and are mediated by society’s views as to what is and isn’t acceptable.
Nobel prize-winning economist Daniel Kahneman demonstrated this with an ingenious experiment. A shop pays its staff $9 per hour. Unemployment rises in the locality and competitors start hiring workers at $7 per hour. If the owner cuts the pay of his existing staff to $7, then 83 per cent of us consider this to be unfair. Yet if it hires new staff at the lower rate, 73 per cent of us think that is fair enough.
Anyone who, like me, has two children will know that convincing people that they are being treated consistently and fairly is well-nigh impossible. So with a slightly easier brief than the Prime Minister, what can we do as employers and HR professionals to improve perceptions of fair reward and just desert in the workplace?
First, you need to clearly state that fairness is a key goal for your organisation’s reward policies. Second, you have to have processes in place to deliver and monitor fair pay: objective job evaluation systems and robust market data, and crucially for any form of individual performance-related pay, an effective and well-moderated performance management process. Third, you need to communicate and explain these pay processes and outcomes to staff. As the CIPD survey shows, perceptions are far more likely to be positive where there is open communications.
And finally you have to ensure that the risks and the benefits of performance in the organisation are shared appropriately, with all staff having the opportunity to share in success. 48 per cent of staff in the CIPD survey last year had their pay frozen, while just 26 per cent received a bonus, with the usual bias towards more senior, better paid individuals.
John Lewis just announced another set of “outstanding” results, with sales up almost 10 per cent over the Christmas period. Their all-employee profit sharing plan is an integral part of their sustainable, successful business model. Introducing the approach in the 1950s, the firm’s founder John Spedan Lewis revealed his concerns that although “differences of reward must be large enough to induce people to do their best, the present differences are far too great”.
In today’s faster changing and more highly differentiated world, far more of us should similarly be paying more attention to fair pay.