Fair pay is the apex of employee experience and total rewards 

Amid pay transparency regulations and compliance needs, an increased cost of living and declines in employee trust, fair pay is an expectation. With effective insights, planning, communication and execution, fair pay is not only achievable — it can help make your EX irresistible.

Behind job security, fair pay is the number-two reason workers stick around. It ranks higher than culture, flexibility and even competitive pay, presenting a key challenge to employers. While competitive pay can be benchmarked and validated with empirical market data, fair pay is more qualitative and can be open to interpretation. Fairness can be evaluated relative to peers, experience, performance or tenure, yet these factors can differ in importance from one employee to the next. So, what’s an employer to do? 

HR and total rewards leaders are at a crossroads, caught between employees’ calls for fair pay and executives’ focus on cost control. According to Mercer data from more than 2.7 million respondents, only 55% of employees globally believe they are paid fairly for what they do (this perception can be more impactful than reality, if employers aren’t being transparent and owning the narrative). And while 40% of HR leaders believe fair and equitable pay would greatly improve the EX, rising labour costs is their most-cited workforce challenge in 2024. Yet fair pay doesn’t necessarily mean more pay.

Compensation planning is often focused on adjusting pay at the individual level, ensuring that employee salaries keep pace with external benchmarks. More broadly, it’s about optimising pay strategies based on market conditions and business objectives. But the business and people agendas have never been more intertwined.

Organisations are on a collision course with new technologies, worldviews and regulations, along with a host of interconnected risks that can grind business to a halt. Addressing these issues requires more flexible talent models, plus a highly skilled and resilient workforce. Fair pay is essential for an EX that not only attracts and retains this top talent, but also motivates and empowers them toward peak performance.

A rewards philosophy is your north star on the path to fair pay. It’s a concrete set of beliefs, values and goals that guide decisions around pay and related benefits.

The best rewards philosophies are an extension of the employee value proposition, which in turn should reflect workers’ interests and even your external brand. Employers that truly value career development, inclusion, sustainability or work-life balance will want to ensure that their rewards philosophy follows suit.

Early on in your fair pay journey, a pay equity analysis can help gauge your current pay practices, identify room for improvement and set priorities. It’s about reviewing vast amounts of internal and external data to pinpoint who gets paid for what (and how much) and then finding pay gaps among employees in comparable jobs and markets, or with similar performance.

These insights allow for objective, informed decision-making in support of fair pay. Certain pay gaps align to business rationale around experience, performance and the supply and demand for key skills. But when pay decisions seem to be influenced solely by factors like race and gender, or when new hires earn more than colleagues in equivalent jobs, employers have an opportunity to do better.

While base pay is often the starting point when looking at pay equity, evaluating fairness requires a more holistic view that includes elements such as opportunity, incentives, performance ratings and promotions. Salary adjustments alone won’t deliver true pay fairness. Even when salary increase budgets are limited, organisations can still focus on the mix of other rewards elements like variable pay, benefits and career opportunities to give workers a fair deal. 

Providing fair pay also requires an up-to-date job architecture that maps out the relationships between different accountabilities, duties, skills and pay levels within your organisation.

In response to a volatile job market, many businesses have created new jobs, team structures and compensation packages without regard for how they all fit together. This ad-hoc approach fuels pay inequity, as well as a lack of clarity for workers around career pathways and long-term earnings potential.

The world of work and skills is evolving rapidly. Updating your job architecture and, if needed, your job evaluations to keep pace takes a wealth of data to make informed decisions. Based on the business value of different skills and contributions, some employee groups could see their jobs elevated, with corresponding opportunities for earnings growth. Other segments could see their pay opportunities stagnate as their jobs become less critical. Employees will rightly want to know how these decisions are made and where to invest their energy to develop new skills and keep advancing their careers.

Like any other broad organisational shift, delivering fair pay requires effective change management and communication. Through clear and consistent pay communication, employers can proactively enable leadership and management to become change agents and supporters of the rewards philosophy and pay messaging. These change agents should be prepared to address the full range of employees’ questions and concerns around how their pay is determined, and what they can do to sustain career and earnings growth in the future. These insights will drive an increased sense of fairness and ultimately an improved EX.

Pay transparency is the process of openly sharing details related to pay. Workers already discuss their pay with colleagues, friends and/or family (sometimes on social media), often without the full context as to why they are paid what they are paid. The potential psychological impact can have material consequences which should not be underestimated. Some employees think pay signals how much the organisation values them, not just for their work but as human beings. Those who feel underpaid or treated unfairly may become disengaged, demand a raise, resort to quitting or even sue for discrimination in some locations.

The pay transparency movement is gaining velocity and it can drive positive outcomes. According to Mercer’s Global Pay Transparency 2024 survey, 68% of organisations globally already engage in some form of pay transparency, while our 2023-2024 Inside Employees’ Minds study  found that nearly half (46%) of US job candidates are unlikely to reply to job postings that omit the compensation. Further, employees who believe they are paid fairly are two times more likely than their peers to say they understand how their compensation is determined, and thriving employees are twice as likely to believe their employers’ pay and promotion decisions are fair and equitable. These compelling numbers are likely to keep growing.

With pay transparency laws emerging around the world, keeping quiet is no longer an option. The EU Pay Transparency Directive requires all EU member countries to enact pay transparency laws by 2026, while some US states and other countries around the world are enacting similar legislation. To comply, employers will need to enhance their job architectures, assess or report gender pay gaps and share pay data with employees and job seekers.

In response, certain multinational firms are choosing to upgrade their global rewards philosophies versus a country-by-country approach. This shift reduces complexity, mitigates risk and improves the EX through more consistent communications. Ideally, even if specific pay levels remain benchmarked to local market data, all employees across countries can expect to hear the same story regarding their employer’s approach to pay.

To be sure, some organisations will only meet the minimum requirements around pay transparency. That’s their prerogative. Yet to fully convey how fair pay shapes the EX, it’s helpful to share all of the context, including:

• The total rewards package (pay, incentives, benefits, career development) available to employees
• How employees’ pay compares to internal salary ranges and external benchmarks
• How pay increases are determined (such as market adjustments, salary ranges, performance)
• How pay reflects the business value that employees contribute
• Pay gaps or inequities among different workforce segments
• Specific actions and career paths employees can take to improve their pay

Employers of choice don’t see pay transparency as a compliance exercise but as an opportunity to own the narrative. If you provide fair pay with a strong business rationale, shout it from the rooftops. If you’re lagging on fair pay, don’t leave room for speculation — acknowledge what’s wrong and explain how you’re fixing it (or why you aren’t).

Beyond the legwork and analysis that’s required for compliance and administrative work required to meet legal requirements, pay transparency also entails the actual sharing. Leading employers communicate their rewards philosophy, methodology and approach frequently, in a clear and relatable way. This practice enables managers and employees to engage in more facts-based, effective dialogues around performance, pay and progression.

Even as you establish more fair and consistent pay practices across your business, each individual employee is in a unique circumstance that determines how pay affects their EX. Delivering pay transparency requires digestible content that’s underpinned by a global communications strategy. This includes a mix of manager enablement tools, HR office hours and digital communication platforms for greater accessibility and personalisation. These solutions allow for targeted, up-to-date information that helps employees understand their employers’ overall pay programmes, gauge where they’re at and see how they can advance.

Delivering on fair pay should not be taken lightly. When asked what would cause them to lose trust in their organisation, employees’ number one response was broken promises around rewards and career growth. Employers can walk the talk around fair pay by improving talent management activities, modernising their pay practices and providing resources that could potentially improve employees’ financial well-being.

Organisations can improve several aspects of their talent management efforts to better deliver fair pay:

Fair pay is an investment in your people, financial well-being programmes can help secure the returns. For fair pay to improve the EX, employees also need the right knowledge and tools to manage their earnings effectively — to meet their expenses today and in the long term.

Employers provide a range of financial well-being programmes, often supported by digital platforms. More than one-third offer flexible savings programmes (35%) and targeted financial education (39%) and nearly one-quarter (24%) boast phased retirement options. Three in four HR leaders are even using or planning to use AI for helping employees advance their financial well-being. These offerings allow for more targeted, effective and less-biased support across different workforce segments, elevating the EX for everyone.

As technology changes the nature of work and the skills we require to succeed, organisations need new ways to measure and reward the value each worker provides. Traditional performance metrics such as hours and widgets may have been ideal for repetitive, transactional work; yet with AI and automation supporting more of these tasks, humans are doing more knowledge-based and relational work that isn’t as easy to quantify.

This shift demands a new approach to compensation that’s both holistic and formulaic: one that recognises the full breadth of employees’ skills, performance and experience in a manner that’s more consistent, strategic and fair. Pay-for-performance and pay-for-skills programmes are important parts of the puzzle, but there’s a fundamental disconnect between employers and the workforce that first needs to be sorted.

Money is a top priority for employees, the rising cost of living is their number-one concern about the future of work and nearly half (49%) say they work mostly for the paycheck. Yet modernising our pay practices is at the bottom of executives’ people agendas for 2024 and it’s only the sixth-highest priority for HR. Fair pay could fuel some of the people initiatives that employers rank higher, such as adopting AI, becoming skills-powered and improving the EX.

It’s an ambitious undertaking but fair pay is clearly more of an ongoing journey rather than an immediate destination. As the world of work evolves at an increasingly rapid pace, so too will the standards for pay fairness and the heights we all scale to keep advancing. To discover key trends, challenges and opportunities around fair pay, download Mercer’s 2024 Global Pay Transparency report with fresh insights from almost 1,200 organisations, as well as commentary from our global team of experts.