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Compensation Strategy Shouldn’t Be a Big Secret 
 

6/27/2008  By Stephen Miller 
 
 

CHICAGO -- Far too many employers spend far too little time talking with employees about compensation, according to Rebecca J. Elkins, SPHR, who heads up Dallas-based Elkins Consulting LLC, which specializes in compensation and employee communications.

During her session at the 2008 SHRM Annual Conference titled “What Employees Know Won’t Hurt You—Sharing Compensation Information with Employees,” she observed that often when employers are asked what they tell their employees about their pay, the response is: “Are you crazy? We don’t dare tell our employees anything except how much we are going to pay them, and we aren’t happy sharing that!”

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“Are you crazy? We don’t dare tell our employees
anything except how much we're going to pay them,
and we aren’t happy sharing that!”

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Which may explain why surveys show that most employees don’t understand how their pay is determined and believe that pay is a topic management keeps to itself. “Discussing pay is uncomfortable because it is not understood—often even by managers,” Elkins said.

Federal labor relations law might stop employers from terminating employees for discussing their pay with each other, but many employers openly discourage the practice. Yet “people are naturally curious, and it’s human nature for people to compare themselves,” Elkins said. Not sharing with employees how their pay is determined only makes them more likely to broach the topic with their co-workers, which is exactly what management doesn’t want to happen. “Pay becomes a game of guessing,” Elkins said, leaving employees confused about the value of their job and how others are valued. The result is unhappy and dissatisfied workers.

On the other hand, “sharing information about compensation strategy builds trust,” said Elkins. “In other words, you’re treating them like adults.”

Elkins shared the story of an employee who, despite receiving excellent performance reviews, had been getting only 2 percent annual salary raises. He finally was told that he had been at the top of his (heretofore undisclosed) salary range for some time, a fact about which he hadn’t a clue. Once he learned this (and also that he was being paid above market rate for his position), the employee could make some career decisions, such as seeking more training for a position with a higher upper pay range.

“Knowing how salary is structured gives employees opportunities to make decisions that may influence their compensation, and their careers,” Elkins said.

A Positive Effect

Elkins noted that recent workplace surveys reveal that most companies rate their compensation communication to employees as “average” overall. Also, most companies communicate about compensation to employees only once a year. But those companies that spend time communicating compensation to employees see a direct, positive impact. “A more informed workforce will have a positive impact on driving business performance,” she surmised.

Ideally, Elkins explained, a credible and consistent compensation structure should be maintained and made available for review. “All managers should be equipped to explain the structure and its underlying philosophy, and answer questions,” she noted. For example, HR and individual managers should be able to explain cost of labor, cost of living, and the difference between them (and why companies match market-level cost of labor in order to remain competitive and viable).

Employees should also understand how to influence pay or seek different pay levels, and how the pay adjustment process works, she advised.

Some companies, for example, share with employees their compensation information every quarter, breaking down different components of pay, benefits, pension, 401(k) and the like. It includes incentives and shows the impact of absences, leaves and overtime choices. This helps employees understand their pay and the cost to the company of their employment.

Other vehicles for communicating compensation include the company intranet, employee meetings, newsletters and e-mails.

One fear, she noted, is that educated employees might want involvement in establishing pay rates and want to change the compensation philosophy. “You can provide them with some input” without surrendering authority over the process, Elkins said, such as taking into account their ideas for salary comparison surveys.

One final benefit of sharing salary information is that it provides a better understanding and appreciation of the linkage between company performance and compensation.

In sum, steps to take to achieve these ends include:

  • Invest time to formulate a sound compensation philosophy.

  • Complete a thorough external and internal equity study.

  • Prepare managers to communicate and educate employees about compensation philosophy.

  • Ensure that a process is established to review market conditions regularly.

  • Send employees personalized compensation/total rewards statements.

  • Educate employees on their benefit options and explore external services to support employees’ financial planning.

“Sharing compensation information with the workforce is a better business strategy,” Elkins concluded. “It builds trust and commitment with leadership, supports growth of an open and trust-based culture, and helps attract, retain and motivate your workforce.” 

 
 Share Your Comp Strategy
Discussing compensation strategy with employees aids their development and builds trust, says Rebecca J. Elkins, SPHR, of Elkins Consulting LLC.
-- View this video

Stephen Miller is an editor/manager for SHRM Online.


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