One year after the outbreak of the gilets jaunes crisis, the issues of fair pay and purchasing power are still alive and well. Many French people are struggling to see the first results of the measures brought in by the government in response to last year’s major protest movement.
While most workers agree that a “fair” wage is one that rewards an individual’s input proportionately, higher wages and purchasing power are still very much in demand among a large section of the population. They also encourage us to think about the notion of a “dignified” salary.
What is a fair wage? In this article, we will think about the different responses to this sensitive issue, looking at psychology, sociology, economics and HR management.
Winning formula: the perception of a “fair” salary
What makes a salary fair in people’s eyes?
A salary that is perceived to be “fair” is one whose financial reward is proportional to an individual’s input. Other criteria are taken into account when thinking about what makes a “fair” salary, such as those relating to equality and fairness between employees.
A fair wage is a wage that is considered “fair” by the employee. This salary, received in return for individual work performed, will encourage the employee to invest more or less in their daily tasks, but also to keep their current job for longer or less time. The employee makes a real trade-off between the level of salary they receive and the quantity and difficulty of their day-to-day responsibilities.
According to the work of Adams, a specialist in organisational psychology, the employee will assess the nature of two key ratios in the analysis of the level of his individual compensation: firstly, he will analyse the ratio of his concrete input in the company and what it gives him back, and secondly, he will directly compare his situation with that of his colleagues by comparing the ratio of his salary correlated with his expertise and personal input, to that of his colleagues.
When these two ratios are considered to be fair and balanced by the employee, they will without doubt invest in their work and develop a strong sense of commitment to the organisation employing them, feeling that they are being paid fairly and equitably. However, this feeling of fairness can quickly give way to frustration and misunderstanding if the employee feels that the ratios analysed are not fair. They will feel unfairly treated and will not hesitate, firstly, to invest less in their tasks; they will also be particularly demotivated to produce high-quality work; finally, they will leave the company without question.
An employee who feels unfairly remunerated will gladly go and see if the grass is greener on the other side in competitor companies. They will look for a salary that they feel is fair in relation to their profile and professional experience, but also their soft skills, which candidates are increasingly putting forward in the balance during salary negotiations.
As an employer, it is therefore important to take an interest in these two ratios to gauge how your employees perceive their remuneration. Based on these two indicators, you can better understand the notion of employee commitment and identify the reasons for any turnover in your various teams. It is important to note that in the sales population, greater importance is given to real opportunities to generate turnover, and in particular to exceed it. The salesperson’s commitment will therefore depend on the nature of the product or service they are responsible for selling and the possibility of generating appealing bonuses through an attractive incentive compensation scheme.
This model for analysing the “fairness” of a salary is based on the concrete input of each individual to the company’s development. This so-called fairness approach will to some extent justify certain salary inequalities. Indeed, as the level of pay is directly related to value contributions, the difference in pay will logically represent different value contributions. Perceptions of “fair pay at work” are thus explained and justified by the employee’s individual level of value contribution. In practice, many companies use the Hay method, which is based on a “job weighing” method that aims to match individual contributions with the pay offered across the company. (See below in the article.)
Weighing up pay: distinguishing the weight of each position
Not all jobs in a company are equal
Thanks to the job weighing system, it is possible to distinguish and classify the different jobs according to their direct impact on performance and, more broadly speaking, on the company’s growth. In this way, certain strategic positions will justify a relatively high salary, according to their level of contribution to the company’s strategy and sustainability. It should be remembered that job weighing is a process of quantitatively evaluating jobs or functions in the company, based on generic indicators applicable to all types of jobs and all types of companies. Evaluating specific criteria allows the following to be done for each of the positions weighed: their business specificities are compared, a common name is created for each position and function, and finally they are categorised and classified in order of strategic importance for the company, in other words the “weight” of the position in the company’s overall structure.
With the exception of certain sales or management functions, it is rare for an employee to be paid exclusively on the basis of calculated simulations of their contributions. There are other mechanisms that come into play in the development of fixed and incentive compensation, such as the legal minimum wage, the different rules of collective agreements, and increases linked to seniority etc. These parameters make it possible to take into account the individual needs or equality criteria formulated by employees. It is also important to remember that today over half of all employees and more than two thirds of executives receive incentive compensation, and this proportion has been increasing steadily in recent years.
Salary smoothing: what about salaries that are perceived to be unfairly low?
Maslow’s hierarchy of needs establishes a formal framework for the motivations of individuals in the form of needs to be met in a hierarchy of five different levels
Developed by Abraham Maslow, a famous American psychologist in the 1900s, the hierarchy of needs describes a hierarchy starting with physiological needs and continuing to the ultimate stage of self-actualisation. These different levels of needs generate tension in an individual and ultimately motivations.
As such, the bottom of the pyramid contains the needs to be satisfied in order priority: physiological needs on the one hand, and safety needs on the other. In addition, primary or biological needs are the first to be satisfied, such as sleep, food and clothing. Then there are safety needs, which represent the need to live in a stable and protected environment. It is in the light of these two categories of needs that we analyse people’s relationship to their wages. Having a salary that allows a comfortable standard of living will thus fall into the category of primary needs, but also into the category reflecting every human being’s need for safety and stability.
The recent gilets jaunes crisis has reignited the debate about wage differentials and the question of what a “decent and dignified salary” is. It is important to stress that the primary need of each employee to be able to support their family with dignity through their salary should be distinguished from the notion of individual contribution mentioned above. Irrespective of the assessment of one’s personal value contribution, the condition for a fair wage for all workers is the possibility of this wage allowing a person and their family to live with dignity, and thus to meet their basic need (primary or physiological and safety needs) without feeling worried or anxious about tomorrow.
Therefore, the basic salary must be in direct correlation with the first two levels of needs described by Maslow’s pyramid, the so-called primary physiological needs and the needs for safety and stability. The feeling of safety offered by an adequate response to these two types of priority needs will enable the employee to move forward in their development, and thus to anticipate fulfilling other needs, with these focussed more on their professional and ultimately personal development.
In this way, by guaranteeing a basic salary that allows the employee to live with dignity, the company will directly establish working conditions that promote personal development and performance. The individual contribution made by the employee, reassured about their economic situation, will naturally be greater. Feeling free of the constraints linked to primary needs, the employee can concentrate on developing their skills and therefore their activity within the company (categorised in the higher levels of the hierarchy of needs). Conversely, it is essential that salaries increase in line with inflation, otherwise the basic needs of employees will not be met and there will be real discontent and unhappiness due to their difficult financial situation.
Trends in incentive compensation: one function, one model?
In terms of incentive compensation, there are specific issues depending on the categories of professions and the different associated business issues
First of all, it is important to point out that incentive compensation, contrary to the gender-based fixed salary inequalities observed in companies, applies in exactly the same way, with no distinction made between women and men occupying the same job. As such, two employees occupying the same position with relatively identical issues should be subject to the same incentive compensation scheme and should be evaluated based on their own individual performance.
Moreover, incentive compensation for sales staff is a very important component of their salary package. As a real motivational lever, job seekers will be motivated by the potential gains offered by a beneficial and motivational incentive compensation scheme.
It is still tricky to find a balanced and fair salary. What is a good salary? How do you define a salary properly? How do you reach the right balance between fixed and incentive compensation? While salary is becoming increasingly important in the relationship between each employee and their company, the search for a balanced salary, consistent with the employee’s value contribution, is just as important.
Offering a fair wage in a war for talent remains the best way for companies to remain competitive, in terms of recruitment on the one hand, but also in terms of employee loyalty and commitment on the other