What does fair pay in the workplace really mean?

I imagine that if you asked a group what “fair pay” means, you’ll have a collection of views. If you then asked a group what “fair parenting” means, you’ll have another collection of views. The concept of fairness seems to rest partly in our own experience of the matter under consideration, and it seems that it is very tainted by our own comparison of the application in our immediate context.

To step out of pay for a while into the parenting world, a sibling that was allowed to have a smartphone at age 15 may deem it unfair when a much younger sibling received their smartphone at age 12. The sense of outrage that comes with an experience of unfairness makes it a burning issue. It burns brightly when it’s happening to us!

Fairness itself does not inherently have a bias. The concept of fairness revolves around treating all individuals or groups impartially and without favouritism or discrimination. It aims to ensure that decisions, processes, or outcomes are reasonable, justifiable, and consistent.

Fairness typically refers to the quality of being reasonable and impartial. It involves ensuring that decisions or actions are consistent, unbiased, and considerate of all relevant factors. Fairness often focuses on the process or procedure by which decisions are made rather than the outcomes themselves.

For example, in a decision-making context, fairness might mean giving everyone an equal opportunity to voice their opinions or ensuring that rules are applied consistently to all individuals. So is it fair that both siblings got a Smartphone? Does the timing make it different?

Managing pay practices with a focus on fairness, justice, equity, and equality involves understanding each concept distinctly and designing a pay structure that balances these principles. Here’s a breakdown of each concept and how they relate to pay management:

1. Fairness: Fairness in pay practices implies impartiality and lack of bias. It ensures that decisions regarding pay are justifiable and reasonable. Fair pay practices take into consideration factors such as job responsibilities and content, job grade, skills required, and market rates for similar roles. Managers ensure fairness by applying consistent criteria across all employees and being transparent about how pay decisions are made – again, it is the process or procedure, and including measures to mitigate the influence of conscious and unconscious bias.

2. Justice on the other hand, is broader and often carries a moral or ethical dimension. It encompasses the concept of what is right, moral, or just. Justice seeks to ensure that individuals receive what they deserve or are entitled to, based on ethical or legal principles. In a pay context, justice refers to the moral or ethical dimension of pay practices.

It involves ensuring that employees receive what they deserve based on their contributions, efforts, and performance. Just pay practices strive to reward employees proportionately to their impact on organisational goals and outcomes. Managers promote justice by aligning pay with performance metrics and recognising employees for their achievements fairly. Consideration of a living wage for a company’s lowest paid employees is also relevant in the context of pay justice.

In summary, fairness tends to focus on the impartiality and consistency of processes or decisions, while justice is concerned with the ethical or moral correctness of outcomes. Bringing these 2 concepts together, a just pay decision could reward a high performer more than a non-performer; the fairness is in the application and communication of the rules.

Let’s add 2 more important concepts…

3. Equity: Equity in pay practices involves ensuring that employees receive fair remuneration relative to their contributions and responsibilities, regardless of demographic factors such as gender, race or age, as examples. Equity acknowledges that different roles may have different value contributions to the organisation and seeks to reward accordingly. Managers promote equity by conducting regular remuneration audits to identify and rectify any pay gaps based on unjustifiable factors. An equity audit would be testing whether fairness has been applied.

Equity is a reflection of fairness by demonstrating that the outcomes of those decisions result in fair and just distributions of reward. In this way, equity is an outcome of fairness.

4. Equality: Equality relates to providing the same opportunities and treatment to all employees regardless of differences. In the context of pay, equality would mean paying equal wages for substantially similar work performed by employees. This concept is enshrined in laws and regulations to prevent discrimination based on protected characteristics. Managers uphold equality by ensuring that pay differentials are based on legitimate factors related to job performance and responsibilities, rather than personal characteristics.

Let’s use just a few examples:

We could ask which factor should be considered the most important. It is indeed possible that pursuit of one element may mean we don’t achieve the other. In this example, we could say there is fairness, but not justice: Imagine a scenario where a company needs to downsize due to financial difficulties. The company decides to retrench employees based solely on tenure, meaning those who have been with the company the shortest amount of time is let go first.

This decision might be considered fair because it applies the same criteria (tenure) to all employees without discrimination. However, it may not be just if some employees who are newer have made significant contributions or have higher performance ratings compared to longer-tenured employees who are retained. In this case, fairness in terms of consistent application of criteria (tenure) is maintained, but justice may be lacking because deserving employees are being retrenched based on a criterion that does not necessarily reflect their value or contributions to the organisation.

This demonstrates that fairness and justice are distinct concepts that can sometimes conflict with each other depending on the context and the specific criteria or principles being applied. Achieving both fairness and justice often requires careful consideration of both the processes used to arrive at decisions and the outcomes that result from those decisions, taking into account relevant ethical, moral, and contextual factors.

To design a pay structure that integrates fairness, justice, equity, and equality, managers can consider the following strategies and practical tools:

• Job Evaluation: Conduct systematic job evaluations to assess the relative worth of different roles within the organisation, using a formal unbiased system; this creates the framework for just and fair decision-making.
• Performance Management: Implement a robust performance management system that objectively evaluates employee contributions and ties rewards to individual and team achievements. This creates defensibility for just decision-making.
• Internal pay audits: Consider your internal pay patterns and any discrepancies that indicate equity issues.
• External market benchmarking: Regularly benchmark salaries against industry standards to ensure that pay rates are competitive and aligned with market trends, to inform your own unique pay structure.
• Transparency: Maintain transparency in pay practices by clearly communicating the criteria for determining salaries, pay increases, and bonuses to employees.
• Regular Reviews: Conduct regular reviews of pay practices to identify and address any discrepancies or biases that may exist, ensuring that pay differentials are based on legitimate factors.
• Training and Awareness: Provide training to managers and employees on pay equity principles and practices to promote understanding and adherence to fair and just pay standards.

By integrating these principles into the design and management of pay practices, managers can create a pay structure that not only attracts and retains talent but also fosters a culture of fairness, equity, and respect within the organisation. An important ingredient is the deep consideration of unintended consequences and testing whether all 4 dimensions have been considered.

In summary, while fairness focuses on the fairness of procedures and decision-making, equity assesses whether those procedures result in fair and just outcomes. Together, fairness and equity aim to promote a more just and equitable society or organisation where everyone has equal opportunities and access to resources based on their circumstances and contributions.

As we close, a challenge to our industry is to see the determination of an organisation-specific living wage as a decision sparked by justice, supported by fair policy, and resulting in an equitable outcome.

Morag Phillips is a Master Reward Specialist, a SARA Executive Committee member, Chair of the SARA Thought Leadership Committee, and a member of the SARA Conference and Reward Awards Committee.

Martin Hopkins is a Master Reward Specialist, and a member of the SARA Thought Leadership Committee, and Head of Reward Advisory Services at Bowmans Law.