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Observations on Employee Ownership

It's Not Fair!

Corey Rosen

August 15, 2011

(Corey Rosen)If you have kids, were a kid, or know any kids, you have heard or said the often-whined refrain "It's Not Fair!" all too often. I have no doubt it is issue number one for the under-10-year old set. But it remains a critical issue for adults too. Just look at how much and how intensely the political discussion revolves around this issue.

People who study the evolution of our psychology tell us it is only natural this is so. Humans succeeded in large part because we worked together. If people who took excessive advantage of others were not punished in some way, the group could eventually fall apart. In modern experiments, researchers have shown that people are willing to give up a fair amount of personal gain in order to prevent someone else from gaining unfairly. If two players are told they can split $10, but only if they agree on the split, they will happily accept $5 and $5, and maybe even $7 and $3. But more than that and the person at the short end will walk away with nothing rather than have the other guy get $8.

Fairness matters immensely at work as well. Pay equity—the perception that your pay is in line with your contributions—is a major determinant of job satisfaction and turnover intention. The perception that the company gives you opportunities for advancement based on merit and not some other factor is another key factor, as is whether people are willing to give your ideas a fair shot.

The problem is that everyone defines what is fair in their own terms. One of my favorite research findings is that 70% of the work force believes it is in the top 10% of the performers. So how can you structure pay and promotion equitably in that environment? The most common approach is that management sets the terms based on its own judgment. A smaller number of companies rely on 360- degree reviews for at least part of the determination. Others add in some metrics on performance (which some employees will see as fair and others, often most others, won't). These approaches all can help, but still face the conundrum that the results, by definition, will still make a lot of people unhappy because so many people believe they are well above average.

So what can you do? First, I would acknowledge the dilemma. Explain to employees that one of your goals as a leader is to create an environment of fairness and define what you mean by that. In most companies, that means decisions are based on performance, but there may be other approaches. Then explain how you measure that and why you have chosen that approach.

That's the easy part. The hard part is now to seek input into the process. Ask people to submit their own suggestions for what could make the system more fair. Have people meet in randomly divided groups to talk about the issue and come up with their own ideas (random in that you mix people's levels and areas of work). Be explicit that you cannot accommodate everyone because everyone can never agree on what fair means, but that you will try to learn from the ideas and implement as many as possible—then have the courage to do that, even for some ideas you may not agree with.

The result will not be perfect. Some people will still complain. But you may get some surprisingly good ideas and, more important, you will have more buy-in to whatever you end up with. Even if that is less elegant and precise a measure than you would have created, the result will be a more engaged work force.

I'll readily admit this will be quite a leap for many companies. Here at the NCEO, we actually decide on the pay formula by consensus (and it has worked incredibly well), so at least I have walked the talk. But it will seem like quite a risk to many managers. To me, it's a risk well worth taking.

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