"Study Finds That Knowledge of Pay Process Can Beat Out Amount of Pay in Employee Retention, Organizational Effectiveness"

P. Mulvey, P. LeBlanc, R. Heneman, and M. McInerney

Journal of Organizational Excellence

Autumn 2002, pp. 29-42

The authors of this study surveyed over 6,000 managers and employees in 26 organizations in the United States and Canada. The study was designed "to determine how well these [new] pay and performance systems are understood, and whether a fuller understanding by employees would contribute to higher results."

The high-level findings of the study were:

1. Performance management processes are well understood by employees and managers;
2. Pay processes are not well understood by employees and managers;
3. There is more satisfaction with compensation amounts than with the processes used to determine pay levels;
4. Pay knowledge and performance management knowledge are positively associated with organizational effectiveness;
5. Increasing pay and performance knowledge has such a strong positive impact on pay satisfaction that organizations may be able to offset modest base pay increase budgets by simply being more transparent about how pay is determined;
6. Short-term incentives are not signaling necessary changes in behavior or motivating those behaviors; and
7. Managers are much less confident in answering employee questions about specific pay issues than performance management issues, but managers also are not receiving many questions about pay from employees.

The article also identifies implications for action from the study's results:

1. Diagnose the current manager and employee knowledge of pay in your organization;
2. Be proactive in educating people;
3. Train supervisors and managers to communicate directly with employees;
4. Personalize the knowledge of pay for people;
5. De-emphasize traditional pay information delivery vehicles (such as formal meetings, videos, and handbooks);
6. Invest in web-based learning systems for certain types of messages and information;
7. Provide much greater information about pay processes; and
8. Evaluate how improvements in the pay process and pay process information can offset increases in total pay levels.

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