An international compensation consulting firm recently conducted a survey of 207 organizations regarding their compensation communications practices. They found that nearly 40% of companies that utilize salary range structures do not share salary range information with employees. Twenty-two percent limit information to an employee’s own salary range and ranges for other jobs within the career family. Only 13% are transparent about their organization’s pay plan. To provide additional perspective, in our work conducting compensation and benefits studies, we have found that 44% of companies do not utilize a formal salary structure.
This prompts two questions: Should an organization establish a structured reward system for determining and administering employee pay? And, if so, what should be communicated to employees about the system?
Total compensation, including pay and benefits, represents a major operating cost (investment) to be purposefully managed. The organization must be intentional about seeking to achieve a return on this significant investment by carefully crafting the system to achieve specific purposes. Ask the question, “What benefit does the company wish to derive from (each component of pay?)” The components of a total reward system typically include:
Each component plays a role in the total package. Together, these components reflect the organization’s commitment to employees’ well-being and its expectations in terms of longevity, productivity, and engagement. The development of Developing a reward system strategy involves clarifying how each component relates to achieving operational excellence.
Employees seldom leave a company because of money, contrary to the reasons often expressed in exit interviews. Individuals leave because something in the environment is incompatible with their personal work preferences or expectations. When it comes to pay, factors that contribute to an employee leaving are lack of understanding about how pay is determined, how to earn more, and perceptions of unfairness in pay decisions. Companies can create understanding and trust through a well-communicated compensation philosophy that includes methods and rationale for making pay decisions.
Generation Xers and Millennials don’t subscribe to the theory of working hard, staying put, and waiting for opportunities for career growth. They want to manage their own careers at their own pace. They are comfortable asking “why” and expecting an answer that reflects sound logic and transparency. If information is withheld, employees assume that something is being hidden, which builds mistrust and discontentment. They will fill in the blanks with their “alternative truth.” Companies must have a system and be as open as possible. But, what do employees want to know?
Kristine Oliver and Rebecca Toman, consultants with Pearl Meyer & Partners, offer the following checklist for communicating compensation: