The Role of Fair Pay on Employee Retention and Satisfaction

The Great Resignation’s momentum has slowed down over the course of 2023. Even so, many workers are still on the lookout for better employment opportunities—26% of workers around the world plan to quit their jobs in 2024.

The most common reason for looking for a new job is wanting better compensation. Nearly 40% of surveyed European employees are dissatisfied with their salaries, while 40% of Canadian workers believe they’re paid an unfair wage.

Additionally, in the Middle East, companies are struggling to keep employees—they have one of the highest employee turnover rates at 21%. This job dissatisfaction is higher in groups commonly impacted by unfair pay discrimination, such as women and minorities.
Since fair pay is closely correlated with employee satisfaction and retention, you may be wondering how to provide it. In this article, we’ll explore the topic of fair compensation and how you can employ it in seven steps.

What is Fair Compensation?

Fair compensation ensures that employees receive equal pay for equal work. It bases salaries on the value of work performed, along with employees’ education, experience, and skillset, as opposed to any demographic factors, such as:

• Age
• Gender identity
• Race or ethnicity
• Sexual orientation

If you want to eliminate discrimination and unconscious bias at your company, providing fair compensation is a crucial step.

Paying your employees fairly can also enhance your company’s diversity, equity, and inclusion (DEI). After all, employees from diverse backgrounds are much more likely to stay at companies that pay them fairly and equitably.

What is Pay Transparency?

One way to assess the fairness of your compensation is to ask yourself, would you be comfortable sharing your employees’ salaries publicly? If not, is it due to an unfair pay disparity?

Sharing compensation information publicly is known as “pay transparency.” Being transparent about the following types of information can build trust between you and your employees:

• Compensation formulas
• Pay ranges for various positions
• Specific employees’ salaries
  

Considering that 75% of job seekers are more likely to submit applications on listings that showcase salary or wage information, practicing pay transparency can also help you attract more job applicants.

The Value of Fair Pay: By The Numbers

So, why should you implement fair compensation? Here are just a few data-based reasons:

• Fair pay promotes employees’ productivity, satisfaction, and engagement – 82% of surveyed workers say that they’re more productive and fulfilled by their work when they perceive themselves to be paid fairly. Additionally, 81% report being more productive and loyal to their employers.
  
• Transparent fair pay reduces employee turnover – Employees who are paid unfairly often feel undervalued, leading them to look for new positions. Payscale discovered that employees are 50% more likely to leave a position if they believe they are being paid unfairly, even if they’re not, emphasizing the importance of fair compensation and pay transparency.
  
• Fair pay enhances DEI – 78% of workers say it’s important for organizations to prioritize DEI. By providing fair pay, you can establish and maintain a more diverse workforce, improving your employee retention and reputation.

• Fair pay facilitates innovation – Research shows that companies with above-average diversity have 19% higher innovation revenues than those with average levels. You can drive higher levels of diversity by implementing fair pay policies.
  
• Fair pay attracts more interest from potential investors – Many modern investors consider companies' environmental, social, and governance (ESG) impact. While climate change is a top concern, fair compensation is a more pressing priority among these investors—65% said fair wages were their leading concern, compared to just 53% who placed environmental responsibility first. Thus, paying fair wages can help you win over the attention and investment of these valuable stakeholders.

While employee retention and compensation can provide powerful advantages, a notable portion of companies are currently missing out on them. In the European Union, the gender pay gap is still around 13%. By making fair pay a priority at your company, you can do your part to close these problematic pay gaps and reap the benefits listed above.

Plus, you’ll avoid legal trouble by ensuring fair compensation from the outset. For example, in Egypt, fair worker compensation is built into The Egyptian Labor Code. Similarly, in Jordan, the government has outlawed wage discrimination. The United States has mandates, including the Equal Pay Act, which prohibits pay discrimination based on gender. Almost every country will have strict laws on fair pay—thus, not only do you benefit the company with happier, more loyal employees, but you also ensure you follow the law and avoid costly fines.

7 Steps to Implement Fair Compensation

Now that you understand the value of fair pay, you may be wondering how to incorporate it at your company. You can do so by following these seven steps:

#1 Define Your Job Positions’ Responsibilities and Rankings

Before you can base your pay on job performance, you need to outline the responsibilities of each job title within your organization. You can do so by:

• Listing out the key responsibilities for each job title
• Assessing the value of each of these responsibilities to your company
• Ranking and classifying these positions based on their overall value
• Comparing your value rankings to industry research

Once you can view the value of each position objectively, you can ensure you set your salary ranges accordingly.

#2 Conduct Market Research

You shouldn’t set your salaries in a vacuum—instead, it’s a good idea to research your industry’s average salary ranges for various positions, along with your job applicants’ cost of living.

As you search for competitor data, make sure to choose companies that are comparable to yours in terms of size and location. This market data can help you determine your:

• Minimum salary – The lowest amount you would pay someone in a certain position.
• Median salary – The most likely amount you expect to pay someone in the position.
• Maximum salary – The most you’d be willing to pay to secure the perfect candidate for the position.

#3 Audit Your Company’s Compensation Distribution

After assessing your competitors, it’s time to turn your focus back to your organization and analyze how your compensation budget is currently being allocated.

Here are some questions to guide your fair pay assessment:

• Does your current compensation feature any gender or racial pay gaps?
• Are employees from certain demographic categories quitting at a higher rate?
• Do you adhere to transparent pay principles or is your salary data kept secret?

At this stage, you may also want to administer a survey of your employees to find out whether or not they feel fairly compensated for their contributions.

#4 Establish Fair Pay Ranges For Each Position

Once you’ve done your research, you can set fair pay ranges for every position in your organization. These pay ranges will take into account the:

• Value of the role to the company
• Market research regarding the role’s typical compensation
• Other benefits included in the role’s compensation package (health insurance, paid time off, stock options, etc.)

After determining your pay ranges, you can display them in your job listings going forward to attract more applicants.

#5 Create a Fair Compensation Committee

Maintaining fair pay long-term requires ongoing management and optimization. As a result, you may want to designate a dedication compensation committee at your company. This committee will be responsible for:

• Setting up reliable systems to track compensation for each position
• Conducting compensation-related surveys with your employees
• Establishing salary ranges for new positions
• Determining the appropriate times to administer bonuses and raises
• Keeping tabs on the evolving job market and regional laws
• Auditing compensation packages regularly to ensure fairness and legal compliance
• Generating fair pay reports for stakeholders and investors

Additionally, avoid relying on individual salary history as a determining factor in each pay decision, as it can continue pay gaps.

If you don’t have the bandwidth to conduct this process internally, you can always outsource it to an experienced Professional Employer Organization (PEO), like Omnipresent.

#6 Implement Your Fair Pay Policies

Once you’ve prepared your pay ranges and set up your compensation committee, it’s time to put your new policies into action.

At this point, you may need to adjust the wages of some of your existing employees. You may also want to share your new pay policies publicly so your current workers can benefit from pay transparency, too.

For compliance purposes, make sure to document all of your compensation policies and audits. This way, you’ll have a verifiable paper trail of your progress to show to regulators, certifiers, and other stakeholders.

#7 Continuously Monitor Your Fair Compensation

The cost of living is always evolving. Additionally, the job market can be quite unstable, as has been displayed over the past few years.

For these reasons, you should never stop reviewing your fair pay practices. With continuous optimization, you can make sure that you offer competitive pay and benefits. You may also discover new disparities from time to time. If so, make sure to resolve them promptly.

Once you feel confident in your compensation’s fairness, you can seek out third-party certifications to display your achievements.