Compensation Focus
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It Pays to Clearly Communicate Compensation

By Kathy Anttila and Jim Kochanski, Sibson Consulting   |  February 2014

Although a medical products company paid its employees competitively, a survey revealed that only 48% of employees were satisfied or extremely satisfied with their compensation. Two years later, that figure had risen to 68%. What happened?

The compensation plan had not changed. Nor had the company's market positioning. The transformation was the result of a new compensation communications program designed to ensure employees fully understand their compensation and have accurate pay expectations.

All too often, a company's employees perceive its compensation policies, plans and actions as a "black box." Not only do they mistrust the system, they have inaccurate expectations that lead to disappointment when pay decisions are made. As a result, the compensation plan is unable to realize its intent to motivate employees and improve the ROI on what is probably the organization's single largest cost. A communications approach that includes clear content and effective delivery can make a major difference.

Clear Content

Effective compensation communications are transparent, purposeful and easy to understand. They should be designed to:

  • Establish realistic expectations. In many organizations, the mismatch between expectations and reality is one of the largest issues creating pay dissatisfaction. When organizations clearly communicate their compensation philosophy, employees begin to grasp what they can reasonably expect.
  • Illuminate the compensation decision process. To accept pay decisions and believe they are fair, employees need to understand how these decisions are made. Openly describing the decision-making process for base salary increases, incentives and promotions will help organizations make their compensation programs more transparent and increase employee acceptance.
  • Emphasize the link between performance and rewards. Communicating not only that the company rewards top performance, but also how the process works, will improve employee engagement and motivation. Managers who may be reluctant to discuss this link with employees should receive training on how to do so.
  • Clarify opportunities for compensation growth. Some companies fail to inform employees about the potential for pay growth in their current job and other positions on their career path. An organization's compensation communications should be designed to help employees understand these opportunities and know what they must to do to attain them, which increases commitment.
  • Include the competitive context. Thanks to the Internet, employees now have easy access to data about what they could earn elsewhere. This increases the organization's obligation to explain its competitive pay positioning and total compensation offerings, which allows employees to put their rewards in perspective.

Effective Delivery

How an organization conveys key information about compensation is as important as the content. When designing their compensation communications, companies should keep in mind these concepts:

  • Facilitate pay conversations between employees and managers. Candid dialog between managers and employees is the No. 1 way employees want to receive pay information. But because many managers are uncomfortable about these discussions, they tend to avoid them or keep them as brief as possible. To encourage and support their managers, organizations should provide tools that suggest what to discuss and when and how to honestly answer tough questions. Interpersonal skills training can help managers maintain a dialog with employees, listen attentively and manage potential conflict.
  • Keep it simple. To help employees grasp pay fundamentals, companies should present information in a straightforward manner using language that non-HR people can understand. Complicated compensation communications are an expensive way to make an organization's workforce feel dissatisfied. For instance, when a company communicated that it was paying at the 75th percentile without including clarifying language, some employees concluded that they were being paid 75% of the market.
  • Make it personal. In companies with diverse workforces, it is important to use customized, targeted information, such as total compensation statements, to illustrate the personal value of rewards. Additionally, organizations should use a range of media to reach managers and employees in ways they prefer. For example, use websites for fast, cost-effective message delivery and paper-based materials for those without convenient web access.
  • Reinforce the message. Although targeted communications are important, companies also need to support their pay message through more general media. To give employees realistic pay expectations, online employee newsletters can include top management interviews about the company's compensation philosophy and articles about how the pay program works.
  • Continue the conversation. Compensation communications should not be a once-a-year event. For example, when communicating to employees about quarterly financial and operations results, explain what the numbers mean from a pay perspective. Top managers should reinforce these messages and model desired behaviors by conducting ongoing conversations about pay with direct reports. Moreover, management training should emphasize the importance of ongoing pay conversations and provide suggested content.

Conclusion

To realize their compensation goals, organizations need to implement a planned approach to compensation communications that emphasizes clear content and effective delivery.

About the Authors

Kathy Anttila is a senior communications consultant with Sibson Consulting in San Francisco.

Jim Kochanski is a senior vice president with Sibson Consulting in Raleigh, N.C.


Read the February edition of Compensation Focus.

Contents © 2014 WorldatWork. No part of this article may be reproduced, excerpted or redistributed in any form without express written permission from WorldatWork.

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