What is equity based compensation

what is equity based compensation

08/17/2012

What is "Fair Pay"?

It is frequently said (by me, if no one else) that the phrase "fair pay" generally means "I want more money."  Therefore, it is a very popular slogan raised by people whenever they wish to press management for higher pay. 

Let’s explore the volatile topic, because it comes up so often and it can be difficult to handle.

Simply claiming that “my pay is unfair” places management on the defensive.  No reason for the accusation is really required, but there are numerous standard popular arguments .

An aggressive posture adopted by a valued worker creates pressure on the supervisor to either immediately accept or reject the contention of unfair pay.

Giving in is the easy solution for well-funded departments.  Granting more money pleases the employee, wins favor for the supervisor, eases future recruiting and often even increases the size of next year’s payroll budget allocation.  Griping costs the individual nothing and can produce great benefits, because many managers have little understanding of their own pay systems and therefore find it easier to give the complainer a raise rather than look stupid by being unable to explain a program they don't understand themselves.  Executives typically are unwilling to lose face by exposing their ignorance. 

Tough-minded managers may offer valid reasons why the pay is proper; but the listening employee just hears excuses.  A debate can ensue that is difficult to resolve because (unfortunately) there is no hard and fast rule that defines “fair pay.”

Legal precedents addressing "fair pay" in the United States are the Fair Labor Standards Act of 1938. the Equal Pay Act of 1963. the Civil Rights Act of 1964. and the Lily Ledbetter Fair Pay Act of 2009, to mention a few. The Fair Pay Act and the Paycheck Fairness Act   are different proposals that have never passed ; they would have provided equivalent legal protections on pay in the U.S. as are found in Canada.  In the meantime, American federal agencies are attempting to implement a variety of protective pay enhancements administratively, as seen in programs from the EEOC. the DOL and the WHD .

The conventional mantra for "fair pay" in the U.S. is that pay is determined by competitive open market

forces reflecting the skill, effort, responsibility and working conditions of the position.  Of course, there are no universally accepted standards for any of those job evaluation category measures, and pay classification is left up to the (nondiscriminatory) choices of each employer.  Since each enterprise is different in some way, it is logical and proper that each employer will have its own unique value system for paying workers "fairly" according to its particular standards.

Here are some potentially helpful links to writings on the subject:  This summarizes the academic studies on the topic.  Eliott Jaques has done most of the best original research, documented in his 1961-1964 books.  This offers the best arguments an employee can muster and present in support of "fair pay."  This addresses Comparable Worth, one approach to determine “fair pay.”  Here are arguments for gender pay equity.  This discusses “unfair pay” for one occupational group.  This treats perceptions of equity.  This shows how pay might not be the real issue in dispute.  Here are proofs that all rewards don’t jingle.

Practical experience (and other research ) tells us that:

1.    employees are more sensitive to internal equity relationships than to external market competitive realities;

2.    when people feel that they are being paid fairly, they are frequently being overpaid compared to objective measures of the external competitive marketplace; and

3.    when workers cease to complain about unfair pay, they are generally extremely overpaid and reluctant to call management's attention to the fact.

The topic is so constantly popular that any internet search under the phrase "fair pay” will produce many hits.  There probably will never be a full and universally acceptable answer to the question, but the total rewards tradecraft continually deals with the subject of pay equity and new observations are always emerging.

What are your thoughts and experiences?

 E. James (Jim) Brennan  is Senior Associate of ERI Economic Research Institute. the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.

Creative Commons image "Balance Scale" by winifredxoxo

Source: www.compensationcafe.com

Category: Forex

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