Annual pay reviews can be emotionally charged for those on the receiving end and, as economic realities bite even harder, there can be a lot more at stake when organisations make various choices around whether to increase, freeze or even cut employee pay. Reward and performance adviser for CIPD
Employers must think carefully about the impact their decision, and how they communicate it, has on their workforce. They must also be careful not to make assumptions about employee’s attitudes to pay. For instance, if workers receive more money, do they actually appreciate this? The CIPD’s latest annual Employee Attitudes to Pay* survey found that 45 percent of those employees surveyed who had been in their job at least one year had been given a pay rise in the past 12 months, while 48 percent had seen their pay frozen and five percent had seen it cut. Satisfaction with the pay rises was generally positive. The main explanations given for pay rise satisfaction by those employed in the private sector were that ‘it reflected the state of the economy’, ‘it reflected how well I had performed at work’ and ‘it was more than I had received last year’. By contrast, in the public sector, the explanations given were that ‘it reflected the state of the economy’, ‘my pay is at or above what I could get elsewhere for doing the same job’ and ‘it kept pace with increases in the cost of living’.
Looking at the explanations given by employees for not being satisfied with their pay rise, the most common reasons were that ‘it did not keep pace with increases in the cost of living’, ‘it did not reflect how well I had performed at work’ and ‘my pay is below what I could get elsewhere for doing the same job’. Amongst those who saw their pay frozen, satisfaction levels were much lower. Reasons given for satisfaction with the pay freeze decision were that ‘it reflected the state of the economy’, ‘it reflected how much money the organisation has to make an award’ and ‘my pay is above what I could get elsewhere for doing the same job’. Reasons for dissatisfaction were similar to those given for dissatisfaction with the pay rise.
The survey also examined whether the respondents’ organisations had actually given employees an explanation for the pay decisions that they had made. Sixty percent of workers said that it had but employees were far more likely to say that they had received an explanation if they had a pay cut 76 percent, than if they had a pay increase 62 percent or a pay freeze 58 percent. Employers that do not make the effort to communicate the reasons behind their pay rise could be missing out. Those workers who received a pay award and whose employer communicated the rational were more satisfied with the rise than with those who received a pay award and whose employer did not give an explanation. Among those who had received a pay freeze, satisfaction was higher again for those who had received an explanation than those who did not.
So, the research appears to indicate that employees will be more satisfied (or less dissatisfied) with their employer’s pay decision, regardless of what the decision is, if their organisation has taken the time to explain to them the rationale behind the pay outcome. Of course, communication is not without costs. Resources have to be invested in creating the message and in delivering it. For instance, giving communication training to line managers so that they can deliver the message in an appropriate manner, investing in financial education so staff are able to understand the business context in which these decisions are being made, or simply finding the time to talk to employees.
However, while communications can be costly, not investing in employee communications could be more expensive in the long run. If the organisation does not make the effort to explain what values, attitudes, skills and achievements it values and will reward and recognise, then employees may feel feeling that their employer is not engaging with them and they could be more tempted to leave as soon as the economy recovers and job opportunities increase. Employers that have made tough decisions allowing them to weather the financial storm could then find themselves floundering as the business climate improves and their employees are tempted to leave an uncommunicative employer.
*The CIPD’s employee attitudes to pay survey was conducted online on behalf of the CIPD by YouGov. The research was carried between the 1st and 7th of November 2011 and 3,056 working adults were surveyed. The survey report can be accessed for free CLICK HERE