Fairness is not perceived in the same way across all forms of rewards. This is the finding of an interesting study, Medium of Exchange Matters: What's Fair for Goods is Unfair for Money by Sanford DeVoe (University of Toronto) and Sheena Iyengar (Columbia University), published recently in Psychological Science and also covered in an article in last week's The Economist.
The study examines differences in how people rate the fairness of programs through which rewards are distributed equally to all, based on whether those rewards are delivered in the form of money or goods.
The Economist provides a good synopsis of study findings:
Sanford DeVoe of the University of Toronto and Sheena Iyengar of Columbia University asked 268 participants to read a scenario about a manager handing out equal rewards to ten employees with vastly different performance records. In some scenarios the participants were told that the manager divided up 20 boxes of chocolates or 20 extra days of holiday equally among employees. In others, they were told that the managers divided up $20,000 or $20,000-worth of credit-card reward points equally. Participants were asked to rate the fairness of the manager’s behaviour on a nine-point scale, where one was extremely unfair and nine was extremely fair.
The researchers found these egalitarian tactics won average fairness values of 6.66 and 6.63 respectively for chocolates and extra holiday, but much lower average values of 5.46 and 5.93 for money and points, a statistically significant difference. This suggested to the authors that something about these rewards made people feel more strongly that they should reflect individual effort.
These study results are aligned with Dan Ariely's (covered in his book Predictably Irrational
A key takeaway for those of us in the rewards profession is that fairness may be defined differently - in the eyes of our employees - for different reward elements. This is important for us to keep in mind as we work to set overall compensation strategy and, particularly, as we work to decide how best to use the different elements of our total reward portfolio.
Treating all employees alike with respect to cash rewards may be perceived as unfair unless there is a logical and honest explanation for the decision. This finding certainly challenges the peanut butter (spreading it around evenly) approach to base salary increases. It also reinforces the importance of clear strategy and communication for broad-based incentive plans (which may provide equal or equivalent awards with the legitimate intent of reinforcing a sense of shared destiny and objectives) so that participating employees understand the purpose and unique role of the plan in their overall total rewards package.
And so the value of this study for me, like so much of the research and "expert" opinion out there, is not a lesson that either cash or goods are right or wrong, but that we need to continually fine tune our understanding of the perceptions and behaviors they provoke, so that we can know how best to incorporate them in a well-designed total reward offering.
Image: Creative Commons Photo "Phat Wad: Break Me Off Some" by Refracted Moments
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