Communicating Your Compensation Plan to Your Employees

Components of a Communication Plan

As you develop your plan, think through whether people understand why they are paid what they are paid, think about what information they need, and offer guidance on how to have compensation conversations.

1. Communicate Your Compensation Philosophy

Your compensation philosophy addresses what is rewarded and why. It provides guidance for compensation decisions so that they are made consistently using the same principles, instead of ad hoc as individuals are hired or promoted. A compensation philosophy is more than an EEO (equal opportunity employer) statement. Pay is a combination of individual qualifications and performance, the organization’s overall performance, and market conditions. Explain how these factors go into compensation decisions and what the organization is doing to monitor and address pay equity.

2. Explain How to Understand Job Descriptions and How Compensation Works

Both employees and managers should be familiar with the pay ranges and compensation levels the organization uses. Job descriptions are an essential part of understanding how and why a job is at a certain level and range. This helps both managers and employees understand what skills the employee should be working on for promotion and to recognize opportunities for learning and growth. These discussions also help employees understand what compensation factors apply to everyone and what depends on the employee’s performance.

3. Train Managers on How to Communicate With Employees About Pay

 If you are just beginning to talk about compensation and pay equity, then start by training managers on the organization’s pay philosophy, strategy, and practices. This will promote more consistent and equitable pay decisions and provide managers with the resources they need to have pay conversations with the people they supervise.

Managers need to understand how pay decisions get made and what matters in making those decisions. Each manager should be able to explain to employees why they are paid what they are paid, all of the factors that are considered in making compensation decisions, and what the employee can do to influence their pay. Managers also need to understand the organization’s process for assessing and addressing pay equity, including how the organization monitors and evaluates pay equity. A pay equity analyst can support managers and others in the communication process with data and insights.

Training for managers should be ongoing so their ability to discuss pay with their employees becomes a core competency. In addition, when significant changes or transactions occur, such as a merger or acquisition, it’s important to communicate the impact on your pay philosophy.

4. Provide Resources for Employees to Understand Their Pay

Make understanding pay easy for employees. Provide an “Understanding Pay” resources section in your employee portal. This can include: 

• Diagrams and information to understand their paycheck, benefits, and deductions;
• A glossary of terms and definitions;
• Questions to ask when choosing benefits;
• What to consider in declaring dependents for taxes; and
• Links to credible outside resources for additional research.

Your “Understanding Pay” resource section can also include FAQs on the organization’s pay philosophy and how those principles are put into practice. And be sure to list whom to contact in the organization for help.

Then schedule regular check-ins between employees and managers to discuss pay and any questions the employee has. If you determine pay adjustments annually, be sure to schedule a check-in at least quarterly to help employees set realistic expectations and let them know what they can do to increase their pay in the short and longer terms.

These issues can be complicated, especially if there is a major change on the horizon. Consider the messaging, timing, and how it will affect both employees and the organization. Internal communications often don’t stay internal. It’s important to make sure that what you are saying internally is consistent with what you want to say externally.

5. Provide Total Compensation Statements

Total Compensation Statements explain an employee’s pay and benefits and how their compensation compares to others in the organization. The statement should contain comprehensive information on all aspects of the employee’s pay and benefits — from base pay and bonuses to medical insurance, 401(k), taxes, and any other benefits the employee receives. Total Compensation Statements also include the pay range for the employee’s role, their position-in-range (PIR), and the average PIR for other jobs at that grade. This information helps an employee understand how they fit into your internal structure, where they sit among their peers, and what opportunities exist for growth in the organization.

Total Compensation Statements should be part of every performance review and any discussion about pay adjustments. The statements should be updated and provided to employees at least quarterly. Some organizations incorporate them into the employee portal so employees can access them anytime.

6. Communicate the Organization’s Performance on Pay Equity

When you do a pay equity audit, announce that the company retained an outside expert to conduct an objective pay equity audit and certification. When the results are in and you have determined what the organization is going to do in response, communicate the plan, timelines, and who will be affected. Remind everyone that when a company makes pay equity adjustments, it can only give raises to address pay gaps and cannot lower anyone’s pay.

If people have been discouraged from talking about pay in the past, assure employees that things are changing and the goal is to provide fair and equitable pay for all. This may result in requests for raises from people who would like more money but don’t have the bigger picture on budget and what the organization is trying to achieve. If raises are not coming any time soon, let people know that. Otherwise, communications can backfire as the company makes a big announcement about pay equity while it appears to be doing nothing.

Pay transparency is an important part of building trust with employees and demonstrating the organization’s commitment to advancement for all. Give people accurate information, set realistic expectations, and make sure your actions are consistent with your philosophy and communications.

7. Measure Success

How do you know if your pay equity efforts are working? Define what success looks like at the outset, determine your key performance metrics, and measure results regularly. Start by defining your goals. Are you addressing pay equity to simply reduce the likelihood of future litigation? Is your organization motivated by a desire to increase employee engagement and productivity? Create a strong employer brand that attracts and retains top talent? Positive financial outcomes? All of the above?

If you are thinking this sounds like a lot of work, it all depends on your data and tools for reviewing and analyzing pay equity. It also depends on having a solid pay philosophy and strategy to lean on when your analysis shows that there are issues to look at further and address.

Get Pay Right: How to Achieve Pay Equity That Works is available now.

For more articles like this, read the b. Newsletter.