Getting Pay Right: Perceptions of Fairness and the Influence of Transparency and Trust

Abstract

This project explores employee pay and what it means to get it right through a human values perspective. The project is based on the hypothesis that satisfaction with pay is linked to employee retention, yet satisfaction does not come from higher pay in and of itself; instead, satisfaction with compensation is connected to employees’ perceptions of fairness which are influenced by trust and transparency. This hypothesis was tested using aggregated, non-individually identifiable data from a publicly held Fortune 1000 global professional services firm with 467,000 employees across more than 120 countries. Findings showed that employees are more satisfied with their pay when they believe it to be fair. Consistent with procedural and distributive justice and equity theories, employees believe their pay to be fair when they trust the procedures and processes associated with its establishment as well as the equity of outcomes, both internally from a distributive perspective within the organization as well as externally from a competitive market relevancy perspective. Second, employees trust in the procedure and equity of outcomes when they perceive the source to be competent, caring, honest, and reliable—four qualities to engender trust consistently identified across the work of several notable psychologists. Lastly, perceptions of competence, care, honesty, and reliability are bolstered when there is transparency from the source (in this case the company) about three items enabling employees to validate procedural and distributive equity. These are: (1) the process followed to make compensation decisions; (2) outcomes relative to others; and (3) an explanation of the reasons for personalized decisions (the how, what, and why of compensation). This project demonstrates how pay is symbolic of deeply held human values and expectations around justice, fairness and equitable treatment, all anchored to trust. It offers guidance for how organizations can harness this understanding to design, administer, and communicate pay programs more effectively to improve this aspect of the work experience, and by extension, the lives of people.