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Total Compensation: 3 Tips for Better Employee Communication

Compaas HQ
Jan 3, 2019 6:04:00 AM

There’s no doubt about it: the talent market is tight. Job openings are at a 17 year high, and candidates have many choices about where they’d like to work. While compensation generally isn’t a reason people stay, it may very well convince them to leave. All it takes is one bad day for your employee to scan jobs and believe that the grass is greener on the other side. Even if you lead the market in terms of pay, a lack of transparency around compensation can cause your employees to lose trust in your organization. While 30 percent of employers believe their pay processes are transparent, only 24 percent of workers would say the same. That means there’s a huge opportunity for employers to communicate compensation to employees with greater transparency.

3 tips to communicate compensation to employees

1. Develop a written compensation strategy

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A modern compensation strategy categorizes each role into job grades, each with its own salary band. A job grade takes into account the impact, seniority, and expectations for a specific role, and salary bands are the target pay ranges for employees within each job grade. Try to set your salary bands by using multiple data sources, such as salary survey data companies (like Radford and Willis Towers Watson), self-reported sources (like Payscale and Comparably), and company recruiters and managers. Also determine whether you aim to lead the market, match the market, or lag the market.

A formal, written document can help your team make clear decisions, resolve disputes, and communicate more clearly to employees. It should be used when determining what to offer a new hire, and how to determine compensation increases for existing employees. A clear strategy can then help you communicate compensation decisions with candidates, employees, and their managers.

Review your salary bands on a regular cycle to ensure that they remain up to date with changing market conditions. In a tight labor market, compensation is increasing across the board, and new hires may end up earning more than long-term employees. While some will negotiate their compensation, others may simply leave. Retain your people by reviewing your compensation strategy regularly, and having proactive conversations about pay increases and why you’re giving them.

2. Educate and empower your managers

Your managers are likely fielding questions from your employees around compensation, but may not be prepared to provide adequate answers. In fact, only 29 percent of organizations train their managers to have retention- and satisfaction-critical conversations about pay. Money is a taboo subject for many, and managers are often unsure of how to respond. Even if they wanted to have a transparent conversation with employees, managers don’t have the information or data they would need.

A big step toward pay transparency is helping managers communicate more effectively with their teams. Teach managers about your salary ranges and give them visibility on range penetration, so they know where their employees fall into their salary band and why. Managers may inherit people and teams they didn’t hire, so this information can be instrumental in compensation conversations. Each manager should be able to explain compensation decisions to each of their team members, while also understanding what it takes to reach the upper limits of your bands so they can advocate for pay increases.

Managers should also understand Total Rewards and how to talk about them. Compensation has many different components including salary, bonus, stock, and benefits, which organizations balance in many different ways. For instance, an organization that can’t afford to lead the market in salary may make up for it with stock and flexible work arrangements. It’s important that your managers know how to communicate that, so provide them with some talking points to help them have more positive conversations with their teams.

3. Provide your employees with total rewards statements

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Rather than simply discussing compensation with employees, show them what their total rewards looks like. Sixty five percent of people are visual learners and may better grasp and retain the information you share when it’s presented in a total rewards statement.

Employees often see compensation as a reflection of how much the company values them—so lay it all out on the table for them. Show their current salary and consider sharing where they stand within their salary range. Detail things like cash bonuses, target values for stock, and employer contributions to benefits. Help them understand why they are earning their current compensation amount, and how they can increase their compensation. Some organizations go so far as to show employees the salary range above them, so they can begin to think about their career paths and development plans.

These statements will help employees get a comprehensive view of their total rewards package, and can help guide their conversations with managers. In return, organizations are better able to control the narrative around compensation. For instance, an employee who understands why she is near the bottom of her salary range and what she can do to increase it is less likely to be upset if she learns a colleague is earning more.

Final thoughts

Providing competitive total rewards packages isn’t enough—organizations need to be able to explain how those packages came to be, and why each employee falls where they do. The communication around pay matters more than the pay itself, because transparency garners a certain degree of trust. Employees trust that your compensation decisions are made strategically, and not on an ad-hoc basis. They trust that they earn what they’re worth, not only what they’re able to negotiate. And they trust that you’re reviewing data regularly to stay on par with market trends. This ensures that you can use compensation as a strategic advantage to attract, hire, and retain the talent your organization needs to be successful.

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