If a tree falls in a forest and no one is there to hear it, does it make a sound? Perhaps you’ve heard that cliche. And maybe your answer is, Who cares!
But let’s say you’re part of the 90% of companies that have a compensation policy. If your people don’t know it exists, is it the fallen tree that no one cares about?
Chances are, if you already have such a policy, your people aren’t aware of it. And even if they are, more than half of employees, according to a WorldatWork report, don’t understand it. What’s more, about 46% of organizations admit that they share with people only minimal salary information — information that might seem like mumbo jumbo to many employees. Nearly two-thirds of people cannot pass a basic financial literacy test.
Employees talk pay
People want to know your compensation philosophy — that is, your guiding principles and core values around paying people. They want you to be upfront with them when it comes to determining how and what you pay them.
“Employees want more information,” Stephanie Penner, a senior partner at consulting firm Mercer, explained on Time.com. “There’s more information that’s available in the marketplace that’s accessible to employees and job candidates. If an organization doesn’t form its own pay method on transparency, someone else will — and it probably won’t be a complete message.”
Of course, transparency around compensation communication can be “challenging.”
Oh, let’s just be blunt. Pay transparency scares the you-know-what out of many companies. Sure, on one hand, it can bolster organizational effectiveness, engagement, performance, motivation, retention, and other key performance indicators. But such openness can also lead to jealousy and conflict among colleagues.
So it’s no surprise that a 2010 survey found 41% of private companies discourage pay transparency, while one-quarter explicitly prohibit salary discussions. What some of these organizations might be surprised to learn is that such policies might be breaking the law. A patchwork of federal and state laws make it illegal to enforce pay secrecy. (For instance, federal contractors, subcontractors, and federally assisted construction contractors cannot prohibit employees from discussing compensation.) The NLRB also takes a dim view of employer limits on discussions of pay by employees.
How much to share
You don’t have to treat compensation information like it’s classified CIA data. Nor do you need to post everyone’s salary online, though some companies are doing just that. You can find a middle ground.
For example, you might decide to publicize pay ranges for different jobs or levels but keep individual compensation private. Indeed, in 2011 almost half of companies give people access to some information about their base salary range.
The most important point about communicating compensation is that, well, you should be communicating compensation.
As Stephanie Thomas, a research associate at the Institute for Compensation Studies at Cornell University pointed out on Monster, “Employees are less likely to feel that differences are unfair if they’ve been told how [your compensation process] works.”
All of which is to say that you might already be paying your people appropriately and offering terrific benefits and perks. However, your total rewards are only as valuable as your people perceive them to be.
You might have a compensation policy, and it may even be communicated — but keep in mind that employees will know what you do in practice. If what you do strays too far from what you say, you end up devaluing the policy. It’s important for you to know what your employees know, and to make sure you match their expectations in practice.
Give them their details
The most essential part of communicating compensation is to make it personal. A great way to do that is with a personalized compensation statement.
When most people think about their compensation, they usually have their salary in mind. However, base pay typically accounts for about 68% of one’s total rewards. The rest is a combination of benefits and various incentives.
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Providing people with individualized total compensation statements can help clearly convey your true investment in them. Plus, it enables people to compare their pay with other potential job offers. (Translation: A robust package that employees can easily reference and comprehend can help retain your top talent.)
Individualized statements should include:
- Organizational compensation philosophy
- Base pay
- Variable/bonus pay, including eligibility requirements
- Medical and dental benefits, including both employee and company contributions
- Flexible spending accounts
- Paid leave (vacation, sick days, holidays, bereavement, etc.)
- Life insurance
- Disability insurance
- Retirement benefits
- Stock options
- Other benefits (tuition reimbursement, training, on-site child care, commuter benefits, etc.)
Just remember that personalization is key. You don’t want to include benefits or perks that an employee isn’t able to take advantage of. In other words, don’t place money on a shelf that’s too high for someone to reach.
Prepare managers to talk pay
Perhaps you already email people information about compensation. And maybe you include these details in your employee handbook. But many of your people are probably not paying enough attention to those methods.
Know what — rather, whom — is most likely to capture their attention? Their managers.
Compensation conversations between managers and direct reports are sometimes often pretty awkward. That’s because talk about money is rarely about only money. All sorts of feelings related to performance, personal worth, lifestyle, you-name-it can easily mix in to create emotionally charged dialogue.
Nonetheless, it’s critical for managers to sit down with their employees to discuss pay. But before that happens, HR must equip them to have those conversations. Unfortunately, in 2011 54% of organizations failed to provide training to help their managers communicate compensation.
To empower managers to have better pay conversations, they need to know:
- Your company’s compensation philosophy
- The right level of detail to pass along to employees
- Your full compensation process
- How organizational performance impacts pay
- The extent to which individual performance ties to compensation
- Ways for the employee to impact pay
- Market rates and trends
Finally, employee self-service (ESS) technology can go a long way toward providing people with quick and easy access to information anytime, anywhere. An online portal that provides workers with the autonomy and flexibility to look at and maintain their records can also help relieve administrative burdens on HR staff. At the same time, an ESS application can help improve the accuracy of data, as well as keep it current.
Ultimately, communicating compensation doesn’t have to be so cumbersome and awkward. By leveraging a range of communication vehicles and formats — direct conversations, FAQs, lists, videos, town halls, brochures, emails (yes, emails), and other means — you can help create more awareness and alignment around compensation’s role in addressing both organizational and individual objectives.