What’s the point of pay?

By Charles Cotton, Public Policy Advisor at the CIPD. 

The CIPD’s 2018 UK working lives gives us some interesting insights into employees’ satisfaction with their pay.

Given that the survey only finds that only 45% of workers think that their pay is appropriate for the job they do, given their responsibilities and achievements, while 36% do not, there is room for improvement. By way of comparison, overall job satisfaction is 64% positive. However, these subjective perceptions of pay are linked to objective amounts of money.

Objective evaluations are anchored around levels of pay. Subjective assessments are anchored around assessments of whether ‘this salary is worthy of my contribution’. The research shows that both absolute and relative aspects of pay interact, even though the survey had asked people to assess their pay in relation to their responsibilities and achievements.

It’s interesting to note that people earning less than the voluntary living wage typically view their pay as unfair while those earning in excess of this regard their salary as fair. The amount of money they earn is just as important as how they earn it.

However, if you increase levels of reward it doesn’t necessarily feed through into significant benefits for the business. If you increase pay and benefits, this has only a moderate impact on job satisfaction and a weak impact on enthusiasm, effort and intentions to quit. We didn’t look at recruitment because our research is focused on job quality, but we can assume that pay levels do play an important part in getting a person to join an employer.

What are the implications of these findings for how we manage people, including how we reward them?

It doesn’t mean that pay and benefits are not important, but the impact is influenced by other aspects of what makes for a good job, such as terms of employment (permanent, temporary, etc), job design and the nature of work, work-life balance, voice and representation, etc.

This means that it doesn’t matter how good your reward package is, its impact will be blunted if, for instance, employees are not satisfied with their health and well-being at work, the quality of relationships with others, or the opportunities they have in the workplace to speak directly to mangers, or through their representatives.

It also indicates where competitive advantage can be found. It’s not through reward and recognition polices themselves, which can be copied, but through how these policies are implemented in ways that support the other people management activity.

Similarly, the effectiveness of an employer’s reward package will be enhanced if other aspects of people management, such as how jobs and work is designed, are aligned with the organisation’s reward philosophy, mission and vision, as well as how it puts its reward policies into practice.

In conclusion, the point of pay is that from the employer perspective it is a means to an end, rather than an end in itself. It plays a part in supporting the organisation’s people management practices, while the organisation’s people management practices play a role in supporting its approach to pay.

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