Regulatory Environment and Pay Equity Factors in Compensation

Most compensation companies have come to terms with terms that employees from all occupational areas will compare their pay and pay scales with others. For example, employees may compare their pay with co-workers, other departments, other companies, and even with union contracts. A serious problem for companies trying to create pay equity, however, is that workers do not all view pays fairness the same, or make comparisons using the same variables as the company.

For instance, judgments concerning fairness may vary based on gender, occupation, location, age, personality, and seniority. Fairness perception is influenced by whether the focus is on oneself or someone else. In addition, employees may feel the value of their contributions is greater than what the company perceives it to be. The value of equity is a major contributor to the promotion of changed employee behaviors since it plays an important role in the acceptance of the reward strategy by the employees.

There are two ways in which employees may feel their pay is inequitable – pay in comparison to those in other organizations (external equity) and pay in comparison with those doing similar jobs in the same organization (internal equity). For instance, Goldman Sachs, one of the leading investment banking firms of the world has a reputation of being a bit harsh on their employees.

Employee participation in administering the pay system is a natural extension of having employees participate in its design (Madigan & Hills, 2004). A participative pay system can be designed by the members of the human resources department, an outside consultant, the employees, or a combination of these sources. In the event of transfer of employees from one location to another, the employer needs to redesign the compensation package so that the employee’s lifestyle in the new location is comparable to that in the old.

Reward Management Values Paying for performance: Performance based pay has been increasing in prevalence in today’s corporations. It may take three forms: individual, group and organization and the organization needs to identify the type of pay which links the action and performance closest. For instance, Citibank puts a lot of emphasis on performance. According to an insider: ……. Citibank’s compensation program is pretty standard, with benefits including stock options and 401(k) plans. Total compensation potential is heavily weighted on performance.

If you are good at what you do, you will receive an amount of total compensation that exceeds industry average. If you have a bad year, your total compensation may be slightly below industry average. (Pommetenke, 2004) Though the espousal of performance-related pay may succeed in employee skill development and autonomy, there are a few negative implications as well. Too much emphasis on individual performance related pay might lead to non-cooperation, since the employee might override the overall good of the organization for personal success.

The team-based performance-related pay will overlook the problems of free-riding and might lead to disillusionment among the employees. (Moore ; Abraham, 2004) Equity: According to a survey conducted by Vault, “Employees seem fairly ambivalent about their compensation program, neither raving nor ranting about their salaries. ” (Wagman ; Folbre, 2004) Another source notes that the “perks are pretty standard for an investment bank, but the gym is a great perk, as it only costs $30 per month to use, while other New York City gyms cost anywhere between $50 and $100 per month. (Pommetenke, 2004)

Indeed, says an associate in M&A, “The company gym in New York is top notch and a deal for employees. ” (Wagman & Folbre, 2004) Hence, there is a necessity for employers to take a clear policy decision on the value placed on equity, and the way it is expressed. (Posner, 2005) Employee sharing in organization’s success: The most popular form this has taken is profit related pay. Sharing the commercial success of the firm with the employees generates goodwill among the employees as the example of Lehman brothers demonstrates.

Compensation and benefits at Lehman are praised by employees, with certain benefits receiving serious compliments. Stock options are another part of comp, but “only kick in for associates. ” (Moore & Abraham, 2004) A VP adds, “Stock is an important part of compensation–a high portion of the company is owned by employees–and the percentage of compensation received in stock increases with seniority. ” As for the 401(k), an analyst adds, “If you earn less than $200,000, firm matches up to $4,000. (Moore & Abraham, 2004) However, these schemes haven’t played much of a role in changing employee behaviors due to the distant connection between effort and reward. (U. S. Office of Personnel Management, 2005) Combining financial and non-financial reward: Recognition by the employer that non-financial rewards may play an important role in attracting, and more particularly retaining employees suggests a view of humanity which recognizes that individuals require more for their efforts than monetary rewards.

Non-monetary rewards can meet five areas of employees’ needs: achievement, recognition, responsibility, influence and personal growth. Yahoo, a leading internet company, for example, makes its employees feel valued right from the day they join the company. On the first day of his job, an employee is greeted by the entire workforce of the office with applause and sweets and his cubicle is decorated with streamers and balloons in the company colors (purple and yellow). (Wagman & Folbre, 2004)