Editor's view, Inside Track, February 2010

This article is filed under: employee motivation, engagement, people, workforce management

The importance of fair compensation

A recent seminar at the London Business School, Evolutionary approaches to Leadership, Management, and Organisational Performance, brought to my attention the importance of our evolutionary past in shaping organisational behaviour. The recent emergence of this field of evolutionary psychology has given rise to a greater understanding of areas of organisational behaviour from hierarchy, power and meritocracy to negotiations and even marketing.

In the current climate, where both private and public sector organisations have been cutting salaries and clamping down on bonuses at tremendous rates, compensation is becoming more important to employees than ever before. Evolutionary theory explains that humans possess an innate desire to be compensated ‘fairly’.

A group member, or employee, tends to regard ‘fair’ compensation as proportional to the value of the contribution to his/her co-workers (and fairness concerns tend to be in relation to relative rather than absolute rewards). Those who feel they are being ‘unfairly’ compensated, in relation to others within or outside their organisations, are likely to lose motivation and begin to look elsewhere for jobs.

In the current climate, and as we move out of a recession and more jobs become available, organisations should be thinking carefully about how they retain employees and ensure that they are committed and motivated. Ensuring that your employees feel ‘fairly’ compensated is a good place to start. For some this might involve introducing performance related pay, for others it may be important to look more closely at the overall compensation package, from salaries and bonuses to less tangible benefits such as recognition, additional days leave and flexible working hours. Understanding what your employees value will help you, so why not find ways to ask them, perhaps in your next staff survey?

A key to a successful business is having a happy, motivated and committed workforce; this will be critical for the year ahead.