How To Communicate Compensation Decisions To Employees
To run a successful business, you need to maintain a competitive edge, not just with your products or services, but also with your team. Attracting new talent and keeping high employee retention is a key responsibility. To achieve this, you need to design attractive compensation packages and make sure employees understand your compensation decisions.
Some employers assume compensation is a simple sum of base salary and additional bonuses. However, tapping into the motivations of your employees and offering added benefits like paid expenses, vacation time, stocks and equity, pension plans, etc, can make a real difference.
Properly communicating everything that goes into their compensation plan will help your employees feel more valued and appreciated.
Plus, people talk, in and out of the office. Discussing salaries is growing more and more socially acceptable. So, let’s get ahead of the game and start talking about it the right way.
Make A Compensation Communication Plan
The idea behind creating a compensation communication plan is to make sure employees are aware of the benefits they are eligible for and build trust in the organization. This helps your team feel valued and, in turn, makes them more likely to stay loyal to the company.
Having a plan in place ensures that communication stays consistent and puts everyone on the same page. How transparent you choose to be, depends on your company culture. According to this study, about 17% of private companies practice pay transparency.
Apart from the intended level of transparency, you will also have to keep in mind the size of your organization, the company’s financial position, your business objectives, the market salary data available and how easy or difficult it is to find qualified talent to effectively make your compensation communication plan.
Decide Who Should Communicate Compensation Decisions
Once you have a plan, the next step is deciding who will be in charge of communicating your compensation strategy to employees.
Ideally, this should be the responsibility of the HR team. However, small companies may not have a dedicated HR team. In such cases, it becomes the responsibility of the CEO or department managers. When employees need to talk about their salaries, they generally turn to their supervisors or managers so they could be a natural fit too.
How Often Should You Talk About Compensation?
All employees are usually told about the compensation they can expect when they join. However, this one-time exercise is not enough. Maintaining an open conversation about compensation can improve employee morale and boost productivity.
As part of your communication plan, decide whether you want to have monthly, quarterly or annual discussions with employees about their compensation. Most companies choose to do this once a year. It needs to be at least this frequent.
Know Your Communication Targets
Before communicating with employees about compensation, it’s important to first understand who you are speaking with. Are they in an entry level position or supervisor role? What are they looking for? What are their goals? Understanding these aspects will help you properly set the tone and mood of your communication, as well as guide you in directing the conversation towards what motivates them.
Decide What You Want To Share During Compensation Communication
Being open and transparent about compensation can prove to be the critical link between improving employee performance and overall satisfaction levels.
It’s important to share three things with your employees about compensation: compensation elements, your company’s compensation philosophy, and market data.
Communicate the Company’s Compensation Philosophy
First, you should share the company policy and compensation philosophy on how compensation decisions are made. This will help employees understand how you have come to your decision and show them that employees are being paid fairly, from a structured basis. Although companies can structure there salaries in different ways, here are a few factors to explain that go into the compensation decision:
- Role: The employee’s position
- Industry: The company’s activity and competitors
- Qualification: The employee’s degrees and certifications
- Responsibilities: What the employee is expected to do in their role
- Experience: How long the employee has been working in the field as well as how many years they have spent in the company
- Location: The cost of living where the employee is based
- Completion of Goals: Bonuses employees receive for reaching the desired result
Sharing the criteria on which you make the decision brings about transparency and shows that employees are being treated fairly. It can also act as an incentive. An employee may decide to complete a certification course if he/she believes that doing so will increase their salary.
Communicate Compensation Elements
Secondly, you need to share information with each employee individually. This will show them that, along with your compensation philosophy mentioned above, you have taken their unique skills into consideration during your compensation decision and that you care about them personally.
When communicating compensation with your employees, it’s important to include every single benefit that makes up their compensation plan.
You should start by communicating the individual’s base salary. Then, include bonuses and other annualized benefits like health insurance, aid for children’s education, profit sharing, equity, etc.
Next, you should include paid vacation time, holidays and sick days. It is important to list what they receive on a monthly basis, as well as any amounts that are invested in the long-term and paid out on maturity, like retirement benefits, for example. Providing employees with a full list of benefits they receive will help them feel more valued and appreciated.
A compensation statement is an effective way to share communication elements with your employees. It lists the salary, bonuses, paid-time off, and all other short and long term benefits along with the financial value of each one. This gives your employees an easy, concise way to see what they are actually receiving from your company. Here’s an example:
Communicate Compensation Market Data
Finally, to strengthen your communication about compensation decisions, it is beneficial to show employees market data that backups up your decision. This can be done with a compensation benchmarking tool. By comparing the criteria of the industry, seniority level, location, company size, etc., you can perform an accurate benchmark for any given role.
If you are paying salaries at or above the market, sharing the benchmark data could be a powerful way to show your employees they are valued and treated fairly.
Select Compensation Communication Channels
Communicate compensation decisions with your employees in two ways- with face-to-face conversation and through documented resources.
Rather than through email, it’s important to communicate compensation decisions with your new hires face to face. This allows you to effectively:
- Elaborate on the real value of all compensation elements
- Cultivate an employee-employer relationship of openness and approachability
- Gain insights into how the employee feels about their salary
Ultimately, opening up the conversation with your potential hires will help them feel more valued and comfortable. It will also give you better insights into how happy they are with their salary. If, for example, a new hire does not seem thrilled about their compensation, you can identify the risk that it might be difficult to retain them later on.
Here are some useful tips to follow when communicating with your employees:
- Don’t use complicated compensation terms
- Use simple terminology that is sure to be easily understood
- Don’t express disappointment with the pay decision
- Keep comments with the pay system neutral. Explain the rationale rather than your opinion
- Don’t blame the rules of the company
- Explain how compensation decisions are made
- Don’t compare their pay or performance with other employees
- Show them market-based data backing up your decision
In addition to speaking with new hires about their salary, it’s also necessary to provide documentation concerning their compensation. Sharing documents with employees is a way to display trust and transparency. After all, you would only put down something in writing when you are confident of it being correct. Documented communication can take multiple forms:
- At the time of hiring, new employees should be given a packet explaining all the benefits they are eligible for.
- When an employee receives commission or bonuses, they should be notified in writing. This will ensure they are conscient each time they are rewarded.
- Employees should also receive writing about their compensation annually, when they are promoted, or when their roles change.
Putting compensation decisions in writing will let employees easily refer back to the document if they ever have questions later on.
You can find an amzing example there, with Whereby's compensation philosophy.
Through an Internal Team Meeting
Hosting a team meeting can be a great way to provide clarity, open up communication, and get insights about your employees’ concerns. During your meeting it is important to openly present your compensation policy and philosophy. Also, don’t stay on the shallow level; dig deep and teach them how salaries work, especially in areas that often confuse employees like gross vs. net salaries, equity, etc.
This will help employees better understand how compensation works.
Then, be sure to leave time open and encourage employees to ask questions or even challenge the way things are done. It’s better to know and address your employees’ concerns than have them get built up and cause problems later on.
We suggest that you make the meeting informal and relaxed so your employees will feel comfortable and more likely to open up. A Brown Bag Lunch session could be a great way to run these meetings. And what better way to share than over food?
Implementing Revised Compensation Plans
Very few things start out perfect and so it is important to measure your progress and do your best to keep improving compensation plans and communication based on feedback. Be sure that you provide a space in which employees can freely speak with you about their compensation. In this way, you can take their feedback, improve, and have a better idea about where your employees stand.
When you meet regularly with your employees about compensation, it’s important to be empathetic and yet firm. Always refer back to the basis on which their compensation was decided and make changes where necessary.
Our Two Cents
Unfortunately, there are moments when employees feel they are not being paid enough even if they are being paid fair compensation above market value. The only way to get around this is with clear, consistent communication.
To ensure that your compensation communication strategy is having the desired effect, you need to be open to feedback. Encourage employees to talk to your team. Surveys can also be a great way of collecting feedback. Ensure that employees feel heard.
It is a better investment of time to have a second or third meeting with a valuable employee rather than lose them because of a perceived notion and have to hire and train replacements.
When done right, compensation communication can make employees aware of company strategies and goals, keep them motivated and reduce attrition rates. It’s a win-win for everyone.