Contemporary workplaces emphasise the importance of building diversity, equality and inclusion into their organisational strategies. A key avenue for doing this is through addressing pay gaps and improving representation across the workforce. In turn, this contributes to creating more ethical, productive and happier workplaces. We all agree that fairness is key for organisational policies, but what does fairness actually mean? And does it mean the same thing to everyone in the organisation?
Developing a shared definition of fairness is fundamental. Project Fair believes the starting point for designing organisational policies is to clearly define what fairness means for the organisation. Fairness is subjective, and individual definitions can depend on one’s cultural and personal experiences. For international organisations in particular it is crucial to recognise this subjectivity. Do not assume that colleagues in all parts of the world automatically have the same perception of what fairness means.
Different approaches to fairness can include equality of treatment, equality of outcome, and allocation based on need. What these terms mean may not be the same for everyone. It can also be based on more meritocratic ideals, i.e. the idea that reward should be based on skill and hard work. Some argue that a meritocratic approach overlooks structural barriers affecting access to education and opportunities for some groups. Others have suggested that a meritocratic perspective is more prevalent in so-called Western societies and cultures. Where an organisation takes a different approach to fairness than that anticipated by an individual employee, feelings of unfairness can be triggered. Feelings of unfair treatment, in terms of processes, resource allocation (like reward), or interpersonal relationships, can result in demotivation.
It is crucial that you understand the perspectives on fairness, which exist in your organisation and develop a shared understanding to represent your organisations approach to fairness. Developing a philosophy on fairness is important, and being open and transparent about what it is and how it links with your organisational policies and practices is key.
Project Fair research suggests there are at least five key areas you need to think through as you review fairness in your international reward system.
- The purpose of having globally mobile employees within your workforce.
- Your organisation's approach to localisation, and its feasibility depending on your scope of work.
- The total reward package you offer your employees. Does everyone at the same grade have the same comparable package in their respective locations?
- What organisations you are competing with to recruit the employees that you need.
- How centralised or decentralised the decision-making structure underpinning your organisation is.
Project Fair’s Principles and Standards of INGO Fair Reward provide a shared definition of fair reward across the INGO sector. They offer an evidence-based framework to shape organisational policies on fairness, based on five principles: ethical reward, equity, transparency, sustainability, and compliance and risk.
Project Fair recommends setting and paying salaries in local currency in all countries, except in very exceptional circumstances. While setting and/or paying salaries in a foreign currency may at first sight appear to be an innocuous cost neutral decision, it brings financial and ethical issues over time.
Project Fair recommends as a principle to address difficult economic situations, such as a strong consumer price inflation that impacts purchasing power, by putting in place temporary cost of living allowances that can vary over time, and possibly be integrated into base salary if inflation persists and local salary levels increase.
Why is that?
While usually correlated, currency depreciation, consumer price inflation and salary inflation can impact each other very differently from case to case. Paying salaries in a foreign currency makes exchange rates the main driver of salary evolution, instead of local salary market levels. Over time, it will often detach salaries from local economic realities and possibly bring extra costs for employers. Furthermore, it risks replicating the inequity of the dual salary system in creating two categories of workers within the local employment market or two categories within the broader population: those with easy access to hard currency and those without.
For further information on the impact of paying or denominating salaries in foreign currencies, please attend our upcoming masterclass later this year either as part of our Project Fair Membership or as a standalone session. Please email Julia Porter, Project Manager at jporter5@ed.ac.uk for more details.