Compensation Fairness and Equity

Most people work for monetary rewards. Whether they receive base pay or variable pay, the extent to which employees perceive their compensation to be fair often affects their performance and how they view their jobs and their employers. These perceptions can in turn affect other important work outcomes such as job satisfaction, organizational commitment, absenteeism, turnover, and retention. This is why HR professionals and other business leaders need to be particularly aware of both external and internal equity concerns if they want to effectively manage these outcomes. Explaining pay grades and pay decision rules can enhance employee perceptions of fair and ethical treatment, as well as help them understand why different jobs are paid at different rates. Maintaining a cloak of secrecy invites curiosity and suspicion from employees, which may result in less trust about how they are being paid.