Treat them fair to keep them there? How to reward your employees fairly.Reading Time: 4 minutes
One of the biggest points of contention in modern employee management is the idea of how managers should go about rewarding employees fairly.
Do you reward employees financially, or do you find a non-monetary way of showing appreciation?
Do you distribute said bonuses equally, or do you hand them out based on individual performance?
Perhaps most importantly, are you favouring certain individuals or groups with your reward distribution?
With the emergence of Microsoft’s new integrity-based reward bonuses, we decided now would be a good time to revisit employee reward structures to go over how to compensate your employees effectively and fairly.
How to make sure you’re rewarding employees fairly
When you’re hammering out the details of how to compensate employees for a job well done, it’s vital to not only consider fairness but the perception of fairness within your organisation.
For example, it makes sense to reward your top earners, but what if their admirable performance was only made possible by the support of their colleagues?
Or, what if you decide to reward your team evenly across the board, but run the risk of alienating your most driven employees?
Then there’s the issue of genuine bias in organisations. As much as we’d all like to view them as yesterday’s problems, issues like sexism, racism and ableism still exist at the corporate level despite the push for diversity being a major element of modern workplace culture. These biases can often exist unconsciously, so it’s imperative that business leaders check the breakdown of their compensation reports to ensure that they’re rewarding employees fairly.
- The gender pay gap: Despite the Equal Pay Act coming into effect fifty years ago, and despite the UK government requiring companies to disclose gender pay gap data since 2017, research from 2019 shows that the gap still exists in 78% of UK companies. And research from Tufts University shows that, in 2018, women made an average of 82¢ for every dollar made by white men.
- Cultural biases: Tuft University’s research into the US gender pay gap found it to be even wider for non-white women. Compared to white male employees, Black women made an average of 62¢ per dollar, while Hispanic women an average of 54¢. In the UK, the Office for National Statistics tracks the ethnic pay gap each year. In 2019, they found that the disparity had shrunk to its lowest levels since 2012, and that Chinese, White Irish, White and Asian, and Indian ethnic groups all earned slightly more on average than White British employees.
But despite this, most minority ethnic groups continue to earn less than their White British peers. ONS also found that the gap increases for employees aged 30 and over when compared to 16-29-year-olds. This suggests that there is a disparity in promotion and other career development opportunities for POC employees in the UK workforce.
- Fair compensation review processes: The prevalence of gender and cultural bias in the modern workplace highlights the need for a fair and transparent way of rewarding employees fairly. The exact nature of how employee compensation is determined should be made clear to employees from as early as the onboarding process. This level of transparency is important to ensure the perception of fairness. Then it’s down to an organisation’s leadership to determine fair compensation. If employees are being rewarded due to individual performance and contributions, then it’s important to make use of data from check-ins and 1:1s to ensure objectivity. All business leaders should agree on a mutually determined list of high performers to prevent favouritism.
Choosing the right compensation scheme for your business
While the various sectors and industries all have their own broad trends, every business is unique in terms of its goals, requirements, and workplace culture. What works for one might not go down smoothly with another, and so the matter of rewarding employees fairly can often be an issue of choosing the compensation method that’s right for your business.
- Individual performance-based financial incentives: The idea behind rewarding individual performance is that you’ll encourage members of your team to try and rise above the expectations set for them and their colleagues. Ideally, you’ll see who’s willing to go the extra mile to distinguish themselves as deserving future opportunities to develop their career. It’s worth remembering that individual incentives have the most room for favouritism and discrimination, so it’s essential to give these rewards out in a way that’s fair and transparent.
- Rewards based on company performance: If the company is doing well in the final quarter, you might see fit to reward everyone in the organisation in proportion to business success. This can be a great way of encouraging teamwork while stimulating discretionary effort, as it allows your employees to take ownership of the company’s success and work together for mutual benefit. But if there are a few key MVPs in team making all the difference to your bottom line, then rewarding everyone equally could cause issues with perceived fairness.
- Non-monetary reward schemes: Or you might choose to do away with cash bonuses altogether. Things like coupons, priority parking access, or a prepaid bar tab can be a great way to do away with the tension of an otherwise financial incentive. Just make sure your employees aren’t banking on that end of year bonus to do their Christmas shopping, or else a few gift vouchers probably won’t cut it.
The limitations of financial incentives at work
Rewarding employee performance monetarily can be quite tricky. The incentive has to be worthwhile, or employees will feel devalued and insulted, but not so high as to create overwhelming pressure. And while financial incentives can be effective for motivating short-term boosts to productivity, they can be less effective in the long-term than non-financial incentives such as managerial praise.
Recent research from Vlerick Business School has found that, financial incentives improved the financial performance of CEOs and CFOs in the short-term, but that the positive effects disappear within a two-year period, and that these incentives can even start damaging the organisation’s profitability.
Ultimately, without knowing quite how Microsoft plans to model the concept of employee integrity, it’s hard to comment on how effective their new incentive plan will actually be. Integrity doesn’t sound like the easiest thing in the world to quantify. If employees don’t feel they’re being compensated in a fair and objective manner, and if it has anything to do with their recently patented software for detecting lazy employees, it could cause more issues than it solves. We’ve previously discussed employee tracking software here on this blog, and the potential trust issues that it can create.
To learn more about fair management and cultivating trust in your workplace culture, visit the Weekly10 blog today!