Today, more than ever, fair remuneration plays a key role in motivating and retaining employees. When employees feel that they are adequately rewarded for their efforts and contributions, they are more likely to remain loyal to the company and give their best. On the other hand, unfairness in the reward system can cause dissatisfaction, reduced engagement and increased churn rates.
Fairness vs. Equality
Fair remuneration does not necessarily mean equal remuneration or so-called "equalization". Equality means that everyone gets the same amount regardless of effort and results, while fairness means that rewards are proportional to contribution, experience and responsibilities. Employees are motivated when they feel that the company recognizes and values their work in a transparent and fair way.
How Does It Affect Motivation?
One of the key concepts in this field is Adams' equity theory, which states that people evaluate the relationship between their effort and the reward they receive in comparison to others. If employees feel that they are paid unfairly compared to colleagues with similar competences and contributions, their motivation decreases. On the other hand, when they perceive the rewards as fair, their engagement, satisfaction, loyalty and willingness to put in extra effort increases.
According to the results of O.U.R. HR latest survey, for as many as 85.1% of employees, the key motivator for changing jobs is the salary and benefits package. However, HR experts are aware of this at a slightly lower percentage, which indicates the need for additional harmonization of expectations between employees and employers.
Impact on Employee Retention
Unfair compensation is one of the most common reasons employees leave their jobs. Research shows that organizations with fair and transparent compensation systems have lower turnover rates. According to our study, uncompetitive working conditions, including salaries and benefits, are the leading cause of employee turnover. Additionally, as many as 88.1% of employees believe that salaries and benefits are the best tool for employee retention—more than 30% ahead of development opportunities.
One particular issue that often arises is the practice of reactive salary increases without a structured, data-driven approach. For instance, an employee may announce their intention to leave, or a manager may notice dissatisfaction and openness to new opportunities. The next step is often an urgent request to HR for a salary increase, additional benefits, or even job title change and sometimes without actual adjustments in compensation. Once granted, this seems like a resolved issue, a “small fire” that has been put out. However, over time, word spreads like it always does, and similar demands arise, leading to a cycle of individual small fires which are, again, handled reactively and individually. Or it may be or a big one which could not be handled with equipment in use (budget available). Just like in effective fire prevention, organizations must establish a comprehensive reward system, continuously analyzing own rewards system in relation to the market, industry, and competition to prevent such issues from escalating.
Connection to Performance
A performance-based reward system can significantly improve employee performance. A merit-based approach, where rewards grow in line with contribution, encourages individuals to continuously improve their skills and productivity. Bonuses, incentive packages and other variable compensation can further increase the motivation to achieve high performance.
It is interesting that most candidates, if given the choice, would rather accept flexible forms of employment such as temporary contracts and freelance jobs with higher earnings, than permanent employment. This trend would probably be even more pronounced if it were not for the banks' strict conditions for approving home loans, which is especially pronounced among millennials, as our research shows.
So, what should we do then?
Equitable remuneration is key to the motivation, retention and high performance of employees. Companies that want to build stable and successful teams should develop transparent and fair reward systems, based on objective criteria. By investing in reward equity, organizations not only reduce turnover, but also foster a culture of high performance and loyalty.