08 Jun Beyond Numbers: Communicating Compensation Value to Staff
If you were to ask some of your employees to explain your organization’s compensation philosophy, what do you think they would say?
Likely, the cold, hard numbers would come up—the dollar amounts reflected on individuals’ paystubs. Additionally, someone might list some of the benefits you offer, like your retirement savings plan, health insurance policy, or amount of vacation days.
But your employees may not be able to explain the “why” behind the compensation decisions your organization makes. And without that context, they may not fully understand how they are valued by you as an employer.
This is why a compensation communication plan (also known as a pay communication plan) is essential. When your employees understand your larger compensation strategy, you’ll improve the employee experience. In fact, a recent survey by Gartner found that when employees know how their pay is determined, their trust in the organization goes up by 10%.
Let’s jump into how you can better communicate compensation value to your employees, whether you’re headed into performance review season or you’re looking for ways to improve transparency and trust at your organization year-round.
Communicating The Who, What, and Why
You’ll typically have two major opportunities to communicate your compensation philosophy and approach to your employees:
- After performance reviews or during one-on-one conversations: These meetings are opportunities for you to not only communicate your larger strategy, but also to field individual employees’ questions, concerns, and feedback.
- As needed in larger meetings or written communications: Broader information or updates can easily be shared in these formats. Remember, any big changes should be promptly communicated, and you should encourage employees to ask questions and provide feedback.
But what information should you specifically cover in these instances? Let’s go over the who, what, and why that should be included in your pay communication plan:
Your employees should know the people who are involved in compensation decisions and conversations. This list will likely include:
- Organizational leaders and HR team: Top-level leaders are responsible for designing and implementing your organization’s compensation strategy, and also will be responsible for frequent strategy reviews and any updates.
- Compensation consultants: According to Astron Solutions, compensation consultants help evaluate an organization’s compensation strategy and make recommendations for improvements that can increase employee satisfaction and retention. These third-party experts bring years of experience and an objective view to the table and can help you fine-tune your current approach.
- Managers: Typically, managers will be responsible for handling compensation conversations with their direct reports, often during performance review season. They also can be a resource for employees with any questions or concerns that come up surrounding compensation.
Explaining to employees all the key players that are involved in your organization’s compensation strategy can help them understand who is responsible for larger strategy decisions, as well as who they can turn to for questions.
Employees should understand all of the elements of their compensation packages. If your organization takes a holistic, total rewards approach to compensation, you can split the different elements into two categories:
- Direct forms of compensation: Salary, incentive pay, allowances, overtime pay
- Indirect forms of compensation: Health insurance, retirement benefits, paid time off, schedule flexibility, perks, company culture, corporate philanthropy programs
Characterizing your compensation elements as a mixture of indirect and direct can help your organization strike the right balance between offering competitive compensation and using your resources carefully.
Keep in mind that when managers communicate any changes in compensation to employees (typically after performance reviews), they should be clear about when any adjustments will go into effect. They should also speak with employees about any compensation goals for the upcoming performance period (for example, any bonus targets or potential promotions that may result in a raise).
The why behind your compensation decisions is the key to showing employees how their compensation fits into your broader organizational goals and trajectory for success. Explaining the why also provides the necessary background that employees need to understand how they’re valued by your organization.
You’ll want to cover two areas of the why:
- Economic and financial context: Compensation decisions don’t happen in a vacuum—they’re affected by things like the labor market, economic turbulence, your organization’s budget, and more. You don’t always have to get into the specifics, but providing some context behind certain decisions can be helpful for employees to understand your rationale. For example, you might explain, “We’re raising your salary by 7% this performance period based on the average salary for similar roles.”
- Your organization’s compensation philosophy: Your compensation philosophy is the position on and approach to compensation that guides all of your compensation decisions. For example, a total rewards compensation philosophy helps you make decisions about compensation that communicate to your employees how much you value them and allows you to compensate them in ways that benefit multiple areas of their life.
When you communicate the why of compensation decisions, employees get the chance to view their compensation from their employer’s perspective. This, in turn, helps them to feel more involved in how compensation decisions are made and can lead to increased trust in your organization.
Quick Tips for Better Pay Communication
Now that you know the key elements that you’ll need for a thorough compensation communication plan, you may be wondering, “How can I make compensation conversations even more effective?” Here are three tips to help make these conversations positive experiences for employees and their managers:
- Express gratitude for the employee’s contributions. Saying “thank you” is one of the best ways to motivate employees during compensation conversations. When employees feel seen and valued for the work they’ve done for your organization, they’ll be in a better position to understand how their compensation is connected to their contributions.
- Document any changes. Any changes discussed in post-performance review compensation conversations should be included in an employee’s file. Additionally, a written copy should be given to the employee for their reference, especially when required by local law.
- Ask for feedback. Be open to hearing your employees’ thoughts about your compensation approach. Have managers seek feedback during one-on-one compensation discussions, or consider sending out surveys.
Additionally, be prepared to discuss any goals set in previous performance period conversations and how your employee’s progress toward those goals is reflected in any compensation changes. Keeping compensation closely tied to performance will reinforce expectations for individual roles and encourage individuals to make personal goals to grow in their careers and skill sets.
How a Consultant Can Help
Compensation consultants can help your organization with overall compensation strategy development and evaluation, designing your executive compensation strategy, conducting benchmark surveys, creating an incentive or variable compensation play, conducting pay equity audits, and even designing your compensation communication plan.
In other words, they can serve as expert guides in your efforts to improve how you compensate your employees and how you talk about your compensation strategy.
But how do you hire a consultant that can serve as a true partner to your organization? Astron Solutions’ guide to hiring a nonprofit compensation consultant recommends you follow these steps:
- Review your organization’s compensation consulting needs.
- Discuss your needs and engagement expectations with your organization’s leaders.
- Outline some key guidelines for the consulting engagement, like a general budget, start date, and timeframe.
- Begin your research to find compensation consultants you want to work with (be sure to ask trusted colleagues for recommendations).
- Draft a request for proposal (RFP) that communicates your organization’s situation, needs, and goals for working with a compensation consultant.
- Compare the candidates you’re considering and reach out to your top picks to submit your RFPs.
- Review completed proposals and select the consultant that you want to work with.
During the hiring process, pay attention to each candidate’s communication style and willingness to accept and incorporate your feedback on their completed proposal. Clear communication and flexibility from both parties will be essential for a successful engagement!
There’s more to compensation than just numbers on a paycheck, and in order to keep your employees satisfied and motivated to thrive in their roles, they need to understand the broader strategy and philosophies at play.
Use this short guide to create and implement your own pay communications plan. Remember to strive for transparency and to turn to a compensation consultant for assistance!
About the Author | Jennifer C. Loftus
Jennifer C. Loftus is a Founding Partner of and National Director for Astron Solutions, a compensation consulting firm. Jennifer has 23 years of experience garnered at organizations including the Hay Group, Parsons Brinckerhoff, Eagle Electric Manufacturing Company, and Harcourt General.
Jennifer has held volunteer leadership roles with SHRM, New York City SHRM, and WorldatWork. She serves as a subject matter expert to the SHRM Learning System and as a SHRM instructor. Jennifer is a sought-after speaker for local & national conferences and media outlets.