Canadian HR Reporter

CANADIAN HR REPORTER July 13, 2015 14 FEATURES PAYROLL Show me the (story behind the) money Organizations should get their house in order when it comes to pay transparency By Claudine Kapel and Barbara Schaaf H ow much informa- tion should you share with employees when it comes to compensation? ere's a lot riding on the answer to that question. Research has found the way or- ganizations communicate about compensation can influence the extent to which employees feel they are paid fairly — which can unleash a wealth of other positive outcomes. For example, a global survey of 33,000 employees by IBM found respondents who indicated they felt fairly paid also reported higher levels of engagement, mental and physical health, and personal life satisfaction. ese respondents were also less likely to report feel- ing unreasonable levels of work stress and were less inclined to look for another job. In a 2014 whitepaper on its re- search, titled Perception is Reality: e Importance of Pay Fairness to Employees and Organizations, IBM indicates there are three key drivers of an employee's faith in the fairness of his pay: • understanding how pay is determined • knowing how to maximize pay • believing pay is related to perf- ormance. So employers seeking to retain and engage top talent and build a high-performance culture are realizing how they communicate about pay is a key consideration. For those who might question the importance of pay fairness, research in behavioural science has shown "the perceived fairness of rewards is a very strong factor in people's response to them, and that it has deep roots in the de- velopment of the human brain," according to a 2015 report by the Chartered Institute of Personnel and Development (CIPD) titled Show Me the Money! e Behav- ioural Science of Reward. "Behavioural science also sug- gests that our subjective value of our level of pay and reward is inherently linked to our percep- tion of others and how they are rewarded for the same productiv- ity," notes CIPD. "For instance, discovering a co-worker of the same level is rewarded more for the same ac- tivity tends to illicit considerable resentment." Easier said than done However, while organizations may understand the need to com- municate on pay in principle, put- ting that into practice is easier said than done. Many employers com- municate about compensation programs to only a limited degree. ere was even a drop in pay communication levels in 2014 versus 2010, according to a sur- vey of 671 managers on compen- sation programs and practices by WorldatWork. irty-nine per cent of the sur- vey respondents indicated they share "minimal pay-related infor- mation" with employees, up from 32 per cent in 2010. Meanwhile, 44 per cent indicated they share "information regarding the design of the pay program" (such as strat- egy, compensation markets and link to performance), down from 49 per cent in 2010. Further, in a 2011 Worldat- Work survey on reward fairness, respondents acknowledged em- ployees were expressing con- cerns about the lack of fairness in reward elements. For example, 25.3 per cent of respondents in- dicated employees frequently expressed concerns about the fairness of base pay or merit in- creases, while 19.2 per cent said employees frequently expressed concern about the internal fair- ness of actual base pay amounts. In addition, 24.3 per cent of respondents said employees fre- quently expressed concerns about the market competitiveness of their base pay. If the benefits are clear, why is there so much debate about pay transparency? ere are two key challenges that can hamper an or- ganization's ability to optimize pay communications: • Leaders, including the com- pensation team, need to agree on what exactly should be communicated. • e organization has to be able to demonstrate its compensation programs are, in fact, fair. e first step on the road to more open communication is to determine the types of informa- tion to be shared. ere are two important questions that drive an employee's assessment of whether she is paid fairly: • Has my pay been determined fairly? • Is my pay fair relative to what others are paid? Sharing information One of the challenges with the notion of pay transparency is it means different things to differ- ent people. In its broadest sense, pay transparency is about being more open about compensation and how people are paid. But that doesn't mean sharing the details of individual pay levels with other employees. is full disclosure approach represents the far end of the information sharing continuum and remains a rare stance on pay transparency. Further, the notion of full inter- nal disclosure raises concerns about privacy that need to be considered. But there is a lot an organiza- tion can share — to help build employee confidence in the fair- ness of such programs — without revealing the intimate details of everyone's individual compensa- tion arrangements. For example, organizations can move toward more open com- munication on compensation by providing more information on: • how the organization seeks to differentiate itself as an employer • its compensation philosophy, including its desired market positioning • the design of salary or wage structures — which can range from sharing information about the pay range of an individual's job, all the way to sharing the de- tails of the full structure • the approach used to align jobs to an appropriate pay range, such as whether the organization utilizes a formal job evaluation process • the criteria used to calculate base pay increases, including how the organization links pay and per- formance, if applicable • details of how incentive pro- grams operate and the crite- ria used to calculate incentive awards • details of how recognition pro- grams operate and the criteria used to allocate recognition awards. With consideration to the cri- teria for shaping pay fairness set out in the IBM research, address- ing these types of matters will enable employees to understand how their pay is determined, how they can maximize their earnings opportunities, and how the organization delivers pay for performance. Why the resistance? So, why aren't more organiza- tions communicating more openly about their compensation programs? First and foremost, organiza- tions need to have a good story to tell. In cases where there are either no formally designed pro- grams or a lot of discretionary de- cisions have been made, creating a lot of "exceptions" to the rules, an organization may not be able to actually show its compensation programs are fair. And they may not be. e road to greater pay trans- parency — and the reaping of related benefits — may not start with a communication strategy but with an honest review of how compensation programs are de- signed and managed. Too much discretion may be undermining pay fairness and limiting the value of open com- munication. The most fruitful path forward, however, isn't to remain silent about pay practices but rather to ensure you have a powerful and inspiring story to tell. Based in Toronto, Claudine Kapel is principal and Barbara Schaaf is a senior consultant at Kapel and Asso- ciates, an HR consulting firm special- izing in compensation design, perfor- mance management and employee communications. Claudine can be reached at (416) 422-1636 and Barba- ra can be reached at (416) 937-2758. CONFLICT MANAGEMENT The rise of the workplace ombudsman A look at the benefits, the risks and how to use this function properly By Parisa Nikfarjam W orkplace conflict can be costly. It can have a negative impact on workplace culture and produc- tivity and — if left to fester — can result in unplanned legal costs. As such, addressing workplace conflict expeditiously and in- ternally can save an organiza- tion both time and money, and restore the workplace in an effi- cient and effective manner. One of the mechanisms for inter- nal conflict resolution has been an ombudsman. is is a person (or office) who oversees or assists with the investigation and reso- lution of workplace complaints. ey are, however, different than HR or equity/fairness officers, and the common functions of an ombudsman are to serve as a dis- pute resolution office, a preven- tion mechanism and an agent of change within an organization. e ombudsman is not a repre- sentative of the complainant, the respondent or the organization. In this way, the ombudsman is an independent party tasked with addressing a complaint. They are neutral and impartial deci- sion-makers and their process is confidential. According to the Forum of Ca- nadian Ombudsman, depending on the nature of the role, an om- budsman may: • use mediation, negotiation and other informal and alternative dispute resolution tools • use inquiries, investigations, re- views and recommendations to address individual and systemic issues • advise, refer and provide infor- mation to resolve complaints • explore trends and patterns to identify issues and affect change. Why have an ombudsman? ere are a number of benefits to having an ombudsman as part of the conflict resolution arsenal: • ey provide employees with an impartial and independent recourse to either raise or discuss concerns (although often the ombudsman is a last resort for complainants). • ey provide information re- garding problems, patterns and trends in the workplace. • ey facilitate an informal reso- lution of complaints that may reach the threshold of policy or legislative breaches. • ey assist with employee satis- faction and morale. • ey address workplace conflict at an early stage and avoid poten- tial escalation and lawsuits. • ey provide a check on man- agement and foster trust and transparency in the workplace. How can they be a bad idea? Crafting an ombudsman's man- date that sets out the organiza- tional commitment to achieve these benefits is, however, not sufficient. Mere reliance on a mandate without careful analysis of the ombudsman's place in the organization can make this role practically useless. Employers contemplating or im- plementing an ombudsman should beware of the following risks: • Lack of organizational sup- port: Before implementing an ombudsman, an organization needs the requisite acceptance and encouragement from the or- ganization (employees and man- agement). Otherwise, the person will struggle to find the resources ROLE > pg. 17 Too much discretion may be undermining pay fairness and limiting the value of open communication.

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