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How to Educate Managers about Compensation Principles

Compaas HQ
Jan 31, 2019 5:53:00 AM

Your managers are on the frontlines of employee retention—and compensation plays a lot into that. Compensation shows employees how you value them and, while it’s not often the reason they stay, it is the most important factor when accepting a new job. There’s a lot competition for talent, making it easy for your people to quickly learn what they could be earning elsewhere.

Helping your managers have proactive, transparent, and meaningful conversations around compensation can go a long way in retaining employees—but they need your guidance and support. Compensation can be your strategic advantage to attract and retain employees, but you first need to educate and empower your managers to have informed conversations with their teams.

Consider where you land on the compensation transparency spectrum

Determine where you land on the compensation transparency spectrum, and whether that’s where you’d like to be. Managers are usually privy to slightly more information than their employees, so they need to understand how much information they should be sharing within their teams. For instance, employees may know the range for their level, while managers may know the ranges for the next level up so they can better understand how to balance promotions and pay increases. 

Compensation Transparency Spectrum

 

If your goal is to become more transparent, make a plan and communicate it with your managers so they understand the changes, and the reasoning behind them. Your plan should include how you’ll handle underpaid employees. For instance, will you bring them all up at once, or will you do so over several pay periods? How will you communicate to overpaid employees that they’ve reached the top of their salary band, and what options are available to retain them? Once you announce the plan company-wide, your managers will need to be able to answer these kinds of questions from their teams.

Dig into job grades and salary bands

A solid compensation strategy should have defined job grades and salary bands, which you can clearly communicate with your managers. Help your managers understand the responsibility level and expectations of employees in each job grade, and how you define the target pay for employees within those job grades.

Also explain how you came up with those bands, and how often you revisit them. Seventy six percent of companies adjust their compensation strategy for retention, 68 percent adjust it for recruiting, and 56 percent adjust it to pay for hot skills. The market moves very fast, so it’s important to adjust your strategy at least once or twice per year.

Finally, give each manager visibility into the salary range penetration of each of their employees, and why each employee currently earns what they do. Managers often inherit teams, and need visibility into their employee’s salary history, promotions, and stock grants.

This accomplishes three goals:

  1. The manager can effectively communicate each employee’s job grade and salary band with them, if it aligns with your level of transparency. This open communication around why an employee earns what they do can be more powerful than the compensation number itself.
  2. The manager can help employees understand what they need to do to get a promotion or compensation increase. Career pathing and employee development are powerful tools to retain your employees.
  3. The manager can advocate for employees who deserve a promotion, a raise, or both. With overlapping salary bands, there’s more flexibility to provide merit-based raises without a promotion, or a promotion without an immediate pay increase.

Compensation is a strong indication of how you value your employees, and many organizations plan to use it as a strategic tool to retain talent. In fact, 59 percent of organizations plan to retain top talent with a merit-based pay plan, and 34 percent will offer a discretionary bonus plan. In addition, 56 percent of organizations plan to retain talent with learning and development opportunities, and 23 percent hope to do so with more perks.

 Pump up total rewards - compensation is worth more than salary alone

Pump up total rewards

Compensation is so much more than salary alone—so share how things like bonus, stock, and benefits complete your compensation package. Your managers need to understand how this all comes together, to ensure fair pay, and to explain total rewards to their teams. For instance, someone on the team may have opted for a lower salary in exchange for more stock, while another employee in the same role may have preferred the opposite. Looking at salary alone, it might appear as though the first employee is below range when, in fact, they’re right on par with their colleague.

Pair this information with how your company is targeting against the market. For instance, your company may lag the market in terms of salary, but provide benefits and perks to make up for it. For many employees, things like flexible work arrangements or a generous retirement match are more important factors than salary—within reason.

Sixty five percent of people are visual learners, so it can be helpful to provide managers with a total rewards statement to share with each employee. Spell out a target value for stock, and how much the company pays for things like health insurance and retirement matching. Show how the employee’s stock has vested, and be proactive about granting additional options to help managers incentivize their team to stay. These things all set up positive conversations for managers to have with their employees.

Final thoughts

Currently, only 29 percent of organizations train their managers to have retention- and satisfaction-critical conversations about pay. This presents a huge missed opportunity for many organizations to get ahead of compensation-related turnover. Your managers are likely already having conversations around compensation with employees, but don’t necessarily have the information, data, or empowerment to make those conversations meaningful. By giving them the training and tools they need to have informed communications, they will be better equipped to retain the talent your organization needs to meet business goals.

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