Luckily, neither employees nor employers evaluate equity outcomes based merely on surveys; it is not like checking the price of a flat screen tv in an electronics store and choosing the one that best meets your requirements and budget. Other factors can go into the overall determination of fair and desired pay practices that satisfies both the employees and the organization, and by extension the Board and external stakeholders. Non-cash compensation and recognition vehicles can be powerful reward mechanisms; these can range from title, to vacation, personal development opportunities, new lateral assignments and other duties and responsibilities; (yes, reward results with more work – remember the lessons of Herzberg). It isn’t necessary to ‘be competitive’ with the market on every component of your total pay practices. Employees are quite capable of factoring into their equity calculation the benefits of non-cash ‘pay practices’ in addition to salary. But you have to tell them.

In these days of

[comparatively] low inflation I think COLA increases have outlived their usefulness and create inequity in external comparisons. Where once salary and price inflation was moving at 6 -10% or more per annum, COLA and frequent revision to salary ranges and pay was necessary. But in these days of low inflation, salary freezes and even reversals, salary ranges should not be increased by ‘1.2%’ every year based on the general increase in cost of living. These sorts of ‘automatic increases’ create built-in expectation and may cause creep in salary costs and becoming higher than market or necessary. And it isn’t just in government and union contracts where this paradigm persists – automatic pay increases seem to be an institutional phenomenon. Engaged employees know it is a competitive market and while they want to be ‘equitably’ paid relative to other similar jobs in similar organizations they can become uncomfortable with being ‘overpaid’ too. Instead, organizations should do their salary surveys every couple of years and make adjustments when they are convinced the average salaries paid their own employees has fallen behind the salary policy line they have set for themselves. And for gawd’s sake, tell the employees how you arrived at the determination!

I also think the ratio of the highest paid position to the lowest in an organization should not be more than 20 / 1. (In 1984, management guru Peter Drucker said wide pay gaps makes it tough to foster teamwork and trust within organizations. “I have often advised managers that a 20-to-one salary ratio is the limit beyond which they cannot go if they don’t want resentment and falling morale to hit their companies,” he wrote in an essay.) Leonard Lee of Lee Valley Tools maintained a policy ratio of 10/1 but this may not be realistic in this age when CEOs wish to compare themselves with entertainers such as basketball players and ‘rock stars’ who command multi-million dollar contracts. Senior executives can differentiate their wealth acquisition, if they need to, through stock and dividends. (For that matter I think professional athletes should be treated like shareholders and participate in profit sharing, not like high priced help with stratospheric salaries and ‘performance bonuses’! Then the price of tickets might come down.)

For employee engagement, pay people fairly: externally competitive [total] salaries, internally equitable ranges, profit sharing on the same basis for all employees; and (voluntarily) stock purchase plans.