THE ROLE OF BELIEFS ABOUT THE FAIRNESS OF WAGE DIFFERENTIALS IN WAGE SETTING : SUMMARY OF FINDINGS

A personal interview survey of 96 personnel managers, union representatives and employees (including line managers) from 11 private sector organisations in engineering, finance and general services.

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Key Points from the Research

Theoretical Developments

New Findings

Impact of the Research

Summary of Research Results

Background

Influences on levels of pay

• The design of the pay systems of the companies owed much to historical factors. For instance, where moves towards greater flexibility had reduced the number of job grades, the rates of pay from the previous grades were preserved in the current system in wide pay bands for each new grade. Feelings about fairness appear to be the main reason why rates of pay lag behind changes in the structure of work. Most people think it is unfair if company restructuring causes some employees, through no fault of their own, to take a drop in pay. At the same time employees tend to demand parity with higher paid workers in the same job. The combination of these factors make pay systems slow to respond to organizational change.
  
• Employees were particularly likely to complain about unfairness if they saw their own incomes falling in relation to those of other workers. This seems to be less a case of employees protecting traditional differentials than feeling unrewarded for their own contribution. There is some evidence that employees only resent narrowing differentials when they wish to defend their own pay, and, more importantly, feel they have a case for doing so. This may have implications for understanding the potential impact of the introduction of the minimum wage.
  
• Many of the employees in the sample experienced a dilemma between feeling that they deserved more pay and recognising that the company was under pressure to save costs. Employees' fears about the dangers of escalating wage costs may explain why the last year has not seen the explosion in pay rises anticipated by economic forecasters.
  

  Explanations and judgements of pay differentials

• Personnel managers and union representatives referred extensively to market forces when explaining pay differentials and pay rates. Very few of the employees did. The reasons for these group differences are unclear, though understanding of market forces is probably aided by the experience of recruiting employees or discussing pay statistics is pay negotiations. Whatever the causes it is important to note that those involved in fixing pay see pay as a price, whilst those who simply receive pay see pay as a reward.
• Those respondents who talked of market forces pointed to a number of problems created by using market rates to determine pay. The most important was that fluctuations in market rates could create pay disparities, such as experienced employees being paid less than new recruits. Managers and union representatives judged total reliance on market forces to determine levels of pay to be na‹ve.
• All the respondents used criteria such as responsibility, training, education, value to the company, working conditions and skills to explain pay differentials. The widespread use of job evaluation suggested that equity was the most important factor for determining pay differentials within companies.
• Many personnel managers wished to move away from job evaluation and job descriptions to methods of rewarding performance and willingness to take on different tasks. Many employees were also in favour of recognition for flexibility and performance, but they emphasised competence rather than performance and wanted more precise job descriptions that related their tasks and abilities to pay. These differences almost certainly reflect the different needs of companies and employees: company needs for a flexible workforce to meet rapid changes in customer demands, and employee needs for security and predictability.
• Few of the companies used appraisal based performance related pay for rank and file' employees. Government pressure on the public sector to reward individual performance should recognise that it is not a very clearly established form of pay in the private sector. Most union representatives disapproved of performance related pay and claimed that it caused more dissatisfaction than any other element in renumeration. Many employees agreed with the principle of rewarding performance, but most distrusted the means of recognising and measuring performance.
• Only union representatives used power (e.g. bargaining power, trade union power, threat of industrial action) to any extent to explain pay differentials. Many of the personnel managers presented a unitarist picture of their organizations - everyone was in the same boat sharing the same goals, whilst almost all the union representatives held a pluralist framework and talked about the organizations in much more political terms.

  Influences on pay rises

• Personnel managers cited company performance followed by comparability with the pay rates of competitors and the rate of inflation as the main influences on pay rises. Union representatives cited a mixture of these three factors plus bargaining tactics in negotiations. Most employees attributed the size of the rise to the cost of living', but about 40% cited company performance.
• Many union officials and employees felt the real pay negotiations went on between the site personnel managers and the group' or head office.

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