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Communicating Your Compensation Programs is Essential

Communicating Your Compensation Programs is Essential

I’m frequently asked “what should we communicate about our compensation plan?” and I always start with the premise that “if you don’t communicate it, it doesn’t exist.”  That’s a corollary to the old rule that says “if you don’t write it down, it didn’t happen.” or the more modern “no pic, didn’t happen.”  The bottom line is that employees need to know two things – 1) how the program works, and 2) how it affects them.

Let’s start with something general — you have to communicate your compensation plans the same way your organization communicates everything else.  If the organization tends to be very open, be very open about the program.  If the organization tends to keep information very quiet, recognize that if you are communicating a lot about your compensation program, employees are going to think something’s up — a change in style makes people wonder what’s going on.

So here are the essentials.  First, explain how the program works.  If you have pay grades, explain how they are developed, and how jobs are assigned to them.  When we communicate about the job evaluation plans our clients use, we describe the plan in general terms, listing the characteristics included, who participated in the evaluation process, and what the overall results are.  Detail isn’t necessary.  Explain what your sources of market data are, and how they are used.  Makes sure employees understand that your market data reflects the real market they are part of.  You don’t need to explain all the math, and if you don’t intend to use salary.com, flat out say that it might be interesting, but it isn’t part of your program.  If you have ranges, explain why you have ranges, and what the different parts of the ranges are for.  Make sure you explain what it takes to get to the top of the range, because that is something most employees want to know.  It goes without saying that your program has to be fundamentally sound in order for this to work.  Even the most “unsophisticated” employee will smell something funny if it isn’t a program that has a healthy dose of common sense.

There’s a balance in explaining a plan.  I think it’s a mistake, for example, to tell employees what the ratings were for each factor in the job evaluation plan for each job, what the scores were, or frankly, anything that opens up a can of worms.  Recognize that when you provide too much detail, you aren’t doing anyone a service, just bringing up the possibility of challenges that really aren’t appropriate.  Describe methodologies, and use non-technical terms whenever possible.

So what should employees know about their own situations?  As much as they need to know.  Tell them what grade their job was assigned to, what the range is, how their pay fits in the range and why it is what it is.  Explain how their pay may move over time, how the range may move, and give them everything they need to know to figure out what their future may hold, always keeping in mind, of course, that the future is always subject to the ability of the organization to pay.

Employees may ask about the grades/ranges for other jobs.  My opinion is that it’s “need to know.”  You “need to know” if there is a reasonable possibility that you may be in a particular job in the future, or if you are considering undertaking some action to eventually get another job.  For example, say an employee is an accounting clerk, and is considering going to college to get a Bachelor’s Degree in Accounting, and wants to stay with the organization.  It would be reasonable to tell the employee what kinds of opportunities exist within the organization for a professional accountant, and what the pay range might be for such a job if an opening was available.  This gives the employee an opportunity to decide if all the effort taking classes at night is going to pay off for them financially.

On the other hand, an employee shouldn’t be told the range for their Vice President of the division, just because he or she aspires to that job some day in the indefinite future.  The balance here is deciding what information is really useful to the employee for the decisions they need to make about their careers, as opposed to helping them figure out who should be buying lunch the next time they go out.

Another thing that is important to remember is that the “grapevine” is going to make sure your wage and salary structure is effectively “posted.”  Invariably, the grapevine is going to be wrong, and employers need to understand that it’s better to be in control of the information rather than spending all their time responding to rumors and complaints.  Post what needs to be posted, and what will ensure that the right information is out there.

Every organization will communicate differently.  What is important is that organizations maximize the effectiveness of the programs they develop by ensuring that they are understood.

For more information about communicating compensation programs, contact Ed Ura at ebura@mercesconsulting.com.

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