Through its 2002 People at Work Survey, Mercer asked a scientifically valid sample of 2,600 US workers to share their attitudes and perceptions regarding their job, organization, work environment, compensation, benefits, and the management of their organization. Of the 180-plus questions in the survey, more than a dozen pertained specifically to reward programs, including pay and benefits.

Half of the employees surveyed (51%) say they understand how their pay is determined, and about the same number feel there is some fairness to their current level of pay:

• 48% say they are paid fairly given their performance and contributions to their organization;
• 51% feel they are paid fairly compared to other people performing similar jobs in the organization; and
• 50% believe the pay in their organization is as good as or better than the pay offered by other organizations in their geographic area.

Frank Roche, a senior communication consultant with Mercer, says these numbers are typical. "When you survey employees about various work issues and conditions, pay usually ranks low in terms of satisfaction," he says. "This has been the case for many years and it’s quite understandable. After all, who wants to say they are overpaid?"

However, Mr. Roche notes, other findings in Mercer's study should raise red flags for employers:

• Just 28% of the employees surveyed say they are personally motivated by their company's incentive compensation plan (e.g., bonus plan); and
• Only 29% say that when they do a good job, their performance is rewarded.

"Employees don't see a strong connection between pay and performance, and their performance is not particularly influenced by the company's incentive plan," says Steven E. Gross, leader of Mercer's US compensation consulting practice. "This means employers are not getting the best return on their reward program investments."

There's another reason why employers should be concerned: These two factors are shown to have a close connection to employees' overall satisfaction with their job and their organization and with employees' intention to stay or leave. For example, among employees who say their performance is rewarded when they do a good job, 90% are satisfied with their job, 88% are satisfied with their organization, and just 12% are seriously considering leaving their organization. Meanwhile, among employees who say their performance is not rewarded when they do a good job, 52% are satisfied with their job, 47% are satisfied with their organization, and 36% are seriously considering leaving their organization.

The same pattern holds regarding incentive plans. Among employees who say they are personally motivated by their organization's incentive compensation plan, 89% are satisfied with their job, 87% are satisfied with their organization, and 11% are seriously considering leaving. However, among employees who say they are not personally motivated by their organization's incentive compensation plan, 52% are satisfied with their job, 49% are satisfied with their organization, and 36% are seriously considering leaving.

Balancing pay with benefits

With limited reward dollars available, employers are trying to achieve the right balance between pay and benefit programs. However, notes Mr. Gross, "As companies decide how to allocate their reward budgets, they need to understand which reward program elements are most valued by their employees or even different groups within their employee population. They also need to understand how employees view potential 'trade-offs' between pay and benefits." 

Mercer's study shows the potential for conflict in this area:

• 58% of the employees surveyed say that increasing direct pay is more important to them than improving benefits.
• 48% of employees say they would be willing to use some of their own money to pay for improved or new benefits that are important to them.
• 49% of employees would be willing to increase their payroll deduction for medical benefits to avoid a cutback in coverage, such as increased copays or deductions.

"These findings show the difficulty and risk of taking a 'one size fits all' approach to reward program design," Mr. Gross says. "What appeals to employees can vary significantly by such factors as age, gender, and income level, so there needs to be some flexibility to accommodate differences in the employee population."

This makes measurement a very important element of plan design, Mr. Roche notes — both in terms of measuring employee opinions and measuring the effectiveness of the reward program in meeting its stated objectives. "Employers need to understand how their reward programs are performing and why," he says.

Mr. Roche also points out the need to consider "delivery" issues as well as design issues with respect to reward programs. "Given these differences in the employee population, organizations can further leverage their investment in reward programs by using highly personalized, targeted communication approaches," he says. "As the research shows, employees who have greater understanding and appreciation of their organization's total value proposition tend to be most committed to the organization — through both the good times and the bad."

Mercer Human Resource Consulting, one of the world's leading consulting organizations, helps organizations create measurable business results through their people. With more than 13,000 employees serving clients from 148 cities in 40 countries worldwide, the company is part of Mercer Inc., a wholly owned subsidiary of Marsh & McLennan Companies, Inc.