An international compensation consulting firm recently conducted a survey of 207 organizations regarding their compensation communications practices. They found that nearly 40% of companies that utilize salary range structures do not share salary range information with employees. Twenty-two percent limit information to an employee’s own salary range and ranges for other jobs within the career family. Only 13% are transparent about their organization’s pay plan. To provide additional perspective, in our work conducting compensation and benefits studies, we have found that 44% of companies do not utilize a formal salary structure.
This prompts two questions. Should an organization establish a structured reward system for determining and administering employee pay? And, if so, what should be communicated to employees about the system?
WHY A SYSTEM
Part of Strategy
Total compensation, including pay and benefits, represents a major operating cost (investment) to be purposefully managed. The organization must be intentional about seeking to achieve a return on this significant investment by carefully crafting the system to achieve specific purposes. Ask the question, “What benefit does the company wish to derive from (each component of pay).” The components of a total reward system typically include:
- Wages and Salaries
- Incentive Pay
- Health & Welfare Benefits
- Income Protection
- Paid Time Off
- As system that is put in place to improve employee experience, which is important to boost the morale of staff. It doesn’t hurt to recognise what they do once in a while.
Each component plays a role in the total package. Together, these components reflect the organization’s commitment to employees’ well-being and its expectations in terms of longevity, productivity, and engagement. Developing a reward system strategy involves clarifying how each component relates to achieving operational excellence.
Contrary to the reasons often expressed in exit interviews, employees seldom leave a company because of money. They leave because something in the environment is incompatible with their personal work preferences or expectations. Regarding pay, factors that contribute to an employee leaving are lack of understanding about how pay is determined, how to earn more and perceptions of unfairness in pay decisions. Having and communicating a compensation philosophy, methods and rationale for making pay decisions will help build understanding and trust.
WHAT TO SAY
Generation Xers and Millennials don’t subscribe to the theory of working hard, staying put, and waiting for opportunities for career growth. They want to manage their own careers at their own pace. They are comfortable asking “why” and expecting an answer that reflects sound logic and transparency. If information is withheld, employees assume that something is being hidden, which builds mistrust and discontentment. They will fill in the blanks with their “alternative truth”. The answer is to have a system and be as open as possible. But, what do employees want to know?
- What is my salary range?
- How was the salary range determined?
- What is the salary range of the next job in my logical career progression?
- How was my pay level determined? What goes into the decisions for setting pay?
- What do I have to do to increase my level of pay? Is it possible to move to the range midpoint and beyond?
- Does performance matter? How about longevity?
- Does everyone get the same pay increase or can I earn a larger increase based on performance?
- What is the marketplace that the company uses to set pay? Where, relative to the market, does the company wish to pay employees?
- If I’m promoted to a higher rated job, what kind of promotional increase can I expect?
- If I have a question about my pay, who should I go to for an answer?
- How do my benefits compare with other companies?
Kristine Oliver and Rebecca Toman, consultants with Pearl Meyer & Partners offer the following checklist for communicating compensation:
Communication Strategy Checklist
- Set your strategy; establish communication champions.
- Define the elements that need to be communicated.
- Determine how and when you want to communicate.
- Consider population needs/wants: generational, culture, geographic.
- Use available technology platforms and communications channels.
- Plan communications carefully.
- Ongoing evaluation of communications strategy is a must.
Joel J. Myers is a career Human Resources professional for the F&H Solutions Group with over 40 years in the field, including 26 years in consulting.