“If we don’t spend as much time and energy communicating about the compensation system as we did with design and implementation, then it will almost certainly fail,” cautioned Stacey R. Carroll, SPHR, director of customer service and education at PayScale, during her session “Communicating About Compensation with Leaders & Employees” at the Society for Human Resource Management’s 63rd Annual Conference & Exposition, in Las Vegas.
“Companies that communicate effectively about pay perform better,” she noted on June 28, 2011.
Carroll pointed to common complaints that stem from a lack of understanding about an organization’s compensation system. Long-tenured employees don’t understand why they can’t be paid over their position’s pay range maximum, why new employees might be brought in at a higher rate and why their pay doesn’t match the “average salary” for the position that they downloaded off the Internet. Managers don’t grasp why they can’t override pay structures to compensate a “unique” new hire better.
Some of these answers will depend on the pay philosophy that should be developed with senior management, highlighting “what we want to reward,” whether that’s performance, longevity, skill sets or something else, Carroll said. Managers should understand the ranges for all jobs and how their people fit into those ranges. Employees should understand what their pay range is and, in most cases, the ranges for positions that they might aspire to.
“If we’re afraid to share salary ranges, it’s a sign that there is a problem with the culture,” said Carroll. “If we’re ashamed of our salary ranges, it’s time to re-evaluate the system. If you don’t find and correct the weak spots, your employees will find them.”
Everyone should know “how we developed our compensation system and why,” Carroll stressed. In addition to the pay philosophy, this likely will include external market data, internal alignment factors, and, most importantly, the pay budget that senior leadership has authorized, based on what the organization can afford to pay in order to remain in business.
“Do everything in the right order,” she advised. “Once you are confident in the compensation system, roll it out to your executive team. Once they are confident, roll it out to your managers. Once they are trained, roll it out to your employees.
“The number one rule is that you can’t do this without leadership support,” Carroll said. “HR doesn’t own compensation.” The compensation philosophy should be designed with guidance from the executive team. Going forward, remind and educate the leadership team of this philosophy and how it underlies the compensation system (e.g., “Remember, we agreed we wanted to be at the 50th percentile level”).
Next, train managers to deal with compensation conversations head on. “If employees are only getting a 3 percent raise, managers should be able to explain how the pay budget was set, the range of the position and how individual raises are determined. Engaging managers in a role-playing exercise is a good way to help them get comfortable with these conversations,” Carroll noted.
When explaining the pay system to employees, “Get senior leadership, rather than HR, to be the ‘big picture’ messenger,” Carroll said. At the next level, train managers to communicate with employees and provide them with the proper resources, including outlines and frequently asked questions.
Effective communications convey the right amount of detail about the underlying process and let employees know what they can do to affect their pay, Carroll explained. “Invest time and resources in getting it right,” she advised. Otherwise, distrust, disengagement and loss of talent will be the result.
Managers should understand why pay is such an emotional issue with employees. “It’s about their ability to provide for their families; what could be more emotional than that?” she noted. “It also speaks directly to whether or not they feel valued. It’s important to be able to explain that the value the organization sets for a position is not the same as the employee’s value as a person.”
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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Disclosing Salary Information, Washington Post, July 2011
Compensation Strategy Shouldn’t Be a Big Secret, SHRM Online Compensation Discipline, June 2008
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SHRM Metro Economic Outlook reports