Thursday, 4 June 2009

Fairness and differentiation


    The IES report, ‘Fairness: the ultimate reward goal’, is one of the first I’ve seen to address what I think is an increasingly important challenge within HR at the moment – and one that I’ve only addressed myself very superficially – the need to increasingly differentiate upon performance, but to help make organisations more inclusive too (as well as the potential conflict between these two requirements).

The report builds on the arguments made by Polly Toynbee in her recent book, Unjust Reward (which explains for example that FTSE 100 CEOs’ pay has increased from 17 to 75 that of average employees since 1990), but with a more specific focus on HR / reward management.

Firstly, Brown notes that rewarding high performance and ensuring market competitiveness have been increasing in importance compared to internal equity for some time.  This goes back well before the need to differentiate high from low performers started to increase at the beginning of the recession.

Another aspect is the pay gap between men and women doing similar work.  I’ve argued previously that despite the poor timing, the new Equality Bill will hopefully have a positive impact on this.  But until it does, all of this has a big negative impact on employee engagement.

So what’s to be done?  Brown argues that HR / reward professionals need to follow four main strategies:

  • Get strategic.  Yep.  And I also agree that “your reward strategy also needs to define what fairness means for your organisation”.  Ie how you and your organisation are going to resolve the conflict between differentiation and inclusiveness.
  • Play fair.  Conduct an equal pay review.  Yep.  Many UK organisations are going to have to do this now anyway.  And the rest still should.  Yes, it costs, but it’s worth doing to ensure that your organisation doesn’t discriminate in the way most do (and yours probably does as well).  This isn’t just about fairness for fairness’ sake.  It’s about engagement, productivity and business performance too.
  • Speak and sow, listen and reap.  Yep.  Communication, management development etc.  All good things.
  • Be of one church.
    • This is the interesting one!


Brown argues, quite persuasively I think, that organisations need to treat their people in more similar, inclusive ways:

“In my view, companies should be going further and reversing the trend towards wholly distinctive reward arrangements for executives. It has become fashionable for example, to take senior executives outside of the job evaluation and pay structures applying to other staff.  Why should there be different methods of evaluation, particularly when so much of the apparently necessary pay flexibility required for executives comes in the form of variable and not basic pay anyway? How does this help to reassure staff that all employees are being treated fairly and judged equally?…

While bonus opportunities may well differ according to scope for impact on the company results and with shareholder‐related measures emphasised at the top, why shouldn’t all employees have the opportunity to share in the financial success of their employer?

Tesco, our most successful retailer of the last decade, has reported an excellent take‐up of its latest all‐employee share scheme offer, despite the current depressed stock market. Over 165,000 employees own equity in the company and they benefited to the tune of around £181 million in 2007.”


This of course, the absolute opposite to what the Economist is recommending for reward strategies in banks – that they should continue to pay superstars in very similar ways to those they always have, but clamp down on the rewards (including the range of entitlements) enjoyed by the ‘extras’ (eg including HR).

I’m not sure that I’ve got a good answer to this dilemma.  Partly because I think that each organisation needs to find their own answer to it themselves.  But I think it’s a really important question at the moment, and one that deserves more airtime than it currently seems to get (so well done, IES).



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