If you haven’t seen Frans De Waal’s TED talk on Moral behavior in animals you should.  One of the best parts is the Capuchin monkey fairness experiment video, where we see that capuchin monkeys – like people – aren’t rational (in the classical economic sense), but instead express outrage at outcomes that are mutually beneficial, but unfair (i.e. when someone else benefits even more for no apparent reason).  In this case the monkeys are happy to do a little work (fetch a rock) for a cucumber treat – until they see their neighbor getting a grape for the same work.  At which point they refuse to participate and throw the cucumbers at the boss experimenter.

In the workplace fairness is particularly important in compensation, and work assignments.   Happiness with salary is mostly relative – in the software field salaries are extremely good – and most developers would still be happily coding even if salaries were 20 or even 30 percent lower than they are.  But if a developer feels that they are being treated unfairly with regard to compensation – if someone in their team is getting 25 percent more for doing the same job and performing at the same level – then expect them to be updating their LinkedIn profile pretty quickly.

Source: Barbara Smaller, New Yorker Magazine

But it’s not just fairness of outcomes you have to worry about.  In Fair Process: Managing in the Knowledge Economy, W. Chan Kim and Renee Mauborgne point out the importance of fair process – fairness in the way decisions are made and communicated.  They define fair process as consisting of three principles:

1. Engagement – reaching out to stakeholders for input, having them participate in the decision making process where possible.
2. Explanation – explaining the reasoning behind decisions.
3. Expectation Clarity – communicating clearly the new expectations that result from decisions and change.

I’ve experience this firsthand as a software developer.  At one company where I worked I didn’t even know we had been through a merit cycle – or how it impacted me – until I discovered (a few months after the fact) that I had been granted some new stock options.  I couldn’t complain about the outcome – I wasn’t expecting anything at the time – but the lack of clarity about the process was damaging to trust and goodwill.

I’ve also witnessed this as a manager.  With good intentions and the business goals foremost in mind, I have seen technical leadership get together and completely rearrange the development teams to execute on new goals.  The problem is that too little reaching out to the developers was done, and even the explanation / context setting was minimally communicated.  You don’t need to achieve consensus, or make decisions democratically – but you do need to push down decision-making as low as possible, listen to stakeholders and over-communicate the business context and rationale for decisions.  This isn’t the industrial age – we need full engagement by all team members, so we have to work to engage everyone when forming decisions.

Fair process responds to a basic human need. All of us, whatever our role in a company, want to be valued as human beings and not as “personnel” or “human assets.” We want others to respect our intelligence. We want our ideas to be taken seriously. And we want to understand the rationale behind specific decisions. People are sensitive to the signals conveyed through a company’s decisionmaking processes. Such processes can reveal a company’s willingness to trust people and seek their ideas—or they can signal the opposite.

So how would fair process be followed in merit cycles?  First of all managers should ensure their team knows when it happens, and how it happens.  Like most compensation communication, this is best handled 1:1.  Then make sure the employee has the opportunity to make their case – ask them to prepare a description of their accomplishments during the time period, and discuss it together.  If you have to assign a rating to the employee as part of the process, be sure to share that rating with the employee – even if it means a difficult conversation about why they are “meeting expectations” instead of “exceeding.”  Then share with the employee 1:1 the resulting decision about any merit/bonus compensation.  If the employee is disappointed, make sure you communicate what kinds of behaviors / activities / impact they should aim for in the next time period.

With regard to reorganizations, first it’s important to accept that there’s no clean way to do it, and that you cannot resolve all anxieties.  However, there are better and worse ways to enact change.  It’s necessary to limit the decision makers, and at the same time take time to listen and solicit ideas from a broad-base.  Groundwork needs to be done, then the context for changes needs to be presented, in-person, with plenty of time for answering questions and addressing concerns – and be sure to provide any promised follow-up answers promptly.  It may seem like this takes a lot of effort and will add unnecessary time – but in the full-context of enacting change, this up-front effort pays dividends in morale, trust, and willingness to adapt and execute on the change.

Fair Process is good for business.

Further Reading / Viewing:

• Ludo Van der Heyden and Thomas Limberg, Why Fairness Matters
• Armin Falk, Fairness and Motivation Talk on YouTube
• Bill Gates, Reorganization: A necessary art in a fast-changing world
• Stever Robbins, Seven Communication Mistakes Managers Make