Simple ways to improve compensation communication
And putting them into practice at your business
When it comes to compensating your employees, there are a lot of factors that influence decision making. No matter how you come to those decisions, one of the most important things is conveying this information to your employees. As a small business owner, it’s even more critical to ensure clear communication of your compensation decisions with employees, as chances are you’re directly responsible for making these choices. In this article, we’ll dive into some tips and tricks to improve your compensation communication, why it matters, and what a sound compensation communication strategy can do for your company. To start, let’s talk about what sound compensation communication looks like.
What is sound compensation communication?
Discussing compensation with your team can be an uncomfortable conversation for everyone involved. There is often tension between you as the business owner or manager and an employee on your company’s payroll. Effective communication of your business’s compensation decisions is critical to maintaining a strategic compensation plan and keeping transparent relationships with employees.
Compensation conversations often occur between you and your employees in one-on-one settings. While a conversation is the best approach, some companies forego real-life conversations for emails or form letters that indicate pay adjustments. This approach often leads to dissatisfaction due to the impersonal nature of these letters. Also, by not providing full context of the circumstances that led to compensation decisions, employees tend to make assumptions and may even spread rumors that can do harm to the business.
Since money is an emotional and deeply personal topic, it can be hard to have level-headed conversations with employees. Being able to effectively communicate your decision making to your employees can have significant impacts on the way your business functions and the happiness of your employees.
Clear and transparent conversations can improve a few different outcomes for your business:
- Employee awareness of company goals, strategies and priorities
- Employee engagement and motivation to meet the stated goals and objectives
- Employee understanding of decisions that happen as a result of economic conditions
- A better appreciation for employee work, dedication and successes and how these impact your company
- Retention of top talent at your business
As you can see, developing clear communication with respect to your compensation strategies can help everyone at your company. For you as an employer, it allows you to convey the variety of inputs that factor into your decision making. For employees, they’ll gain a better understanding of how you make the tough decisions you face now and in the future. Next, let’s take a look at some ways to help improve your compensation communication.
Ways to improve your compensation communication
As you look to improve your conversations around employee compensation, there are a few things to keep in mind:
Develop a solid compensation strategy
Many businesses don’t have a compensation strategy or compensation philosophy in place, making it difficult for them to articulate compensation decisions to their employees. So in order to combat the common misconceptions, it’s important for your business to have a strategy around compensation. This written compensation strategy should clarify how your company handles compensation – whether pay is based on performance, pay compared to competitors, salary and wage management (which includes grades, bands or levels) and the bonus structure your company uses. Your strategy should also include timing of compensation adjustments and the factors that you’ll use to make these adjustments.
Developing a solid compensation strategy can help you shift employee perceptions of how your business operates. This framework allows you to develop consistent policies and implement these policies in your compensation.
A large question concerning compensation philosophies is transparency. While transparency is important, it’s even more critical that your company’s level of compensation transparency aligns with your company’s values and goals. Therefore, a complete transparency policy may only work for certain organizations. The Society for Human Resources Management advises that you should take into consideration the following factors when determining your transparency level:
- Company’s financial position
- Size of the organization
- Business objectives
- Market rate/salary data
- Level of difficulty finding qualified talent
Understand applicable laws
As a small business owner, you should know that compensation changes need to be within the law. There are regulations in place that affect how you structure compensation for your employees, which is especially important to note if you hire union employees at your company. Regardless, you’ll still need to be familiar with key laws and regulations, including the Fair Labor Standards Act, Equal Pay Act and Lilly Ledbetter Fair Pay Act, Title VII of the Civil Rights Act, Executive Order 11246 (which prohibits employment discrimination by federal contractors), and the Davis-Bacon Act. If you’re unfamiliar with these regulations, it’s important to speak with a trusted advisor who can help you navigate them.
Managing the expectations of your employees when it comes to compensation and benefits is critical. Once you establish your compensation philosophy, make sure that it’s communicated effectively to your employees. This will help them understand exactly what to expect when it comes to compensation adjustments, incentives, total rewards and promotions. By laying a solid foundation of communication, you can help manage your employees’ expectations before an issue arises.
Align with executives
As a small business, chances are you're considered the executive at the company. However, maybe your boss is the owner and you’re working to help them understand compensation management strategies. Any executive, whether at a small business or a corporation, is a critical stakeholder of the organization and should have knowledge of the compensation strategy you employ.
Some of the frequent touchpoints that an executive may want to know include:
- Who are we investing in? Why are these the right people to invest in?
- What are we spending on compensation? How will that amount project into next year?
- Have we done enough to ensure fair and equitable compensation?
- How are we motivating our people to be their best?
- How does our compensation strategy match our business strategy?
Compensation is one of the largest expenditures for any business, so those in leadership positions will rightly examine compensation to make sure it aligns with the company’s objectives.
Managers are the first face of compensation. After all, they’re the ones having most of the compensation program conversations that happen at your business. However, they often don’t have the adequate training they need to communicate effectively. This can lead to unprepared conversations, leaving both the manager and employee feeling uncertain about the outcome or dreading the conversation altogether. Therefore, it’s important to help managers gain the formal training required to successfully take on these difficult conversations with their subordinates.
During this training, make sure to cover your company’s compensation philosophy, how to make effective decisions when it comes to compensation, how to communicate effectively with teams, and how to best handle employees who aren’t happy with their compensation. During compensation cycles, human capital management technology (HCM technology) can give managers better insight into their employees to make sure they’re utilizing compensation practices effectively.
As the largest audience when it comes to a compensation communication plan, employee education is vital. As we’ve discussed, when communicating to employees about compensation, you’ll want to cover the following:
- How employee performance can affect compensation
- How your business decides on benchmarks for compensation at each position (including how you utilize market data)
- Important compensation terms and definitions employees should know
Pay statements are an essential tool to help convey your company’s total investment in each employee, giving them a better understanding of the total compensation package they receive beyond just their base pay or base salary.
Speaking of investments, your business should make sure you’re communicating how employees can garner higher compensation, including the available growth opportunities both individually and collectively at your company. This can include providing employees with professional development opportunities.
In today’s work environment, it’s easier than ever for employees to research and find out information about compensation at a variety of levels and companies. As a result, it is vital that your business takes the time to detail the approach you’ve taken to compensation and how that relates to your competitors, the market and job responsibilities.
Keep it simple
When it comes to communication regarding compensation, it’s best to be consistent and clear. Simple communication can then be used in individual conversations and help center the conversation on your company’s philosophy and strategy.
Keep it personal
When discussing compensation with employees, the focus should be on the individual employee in the conversation. A compensation conversation is individual and personal – each person’s compensation relies on a variety of individual factors, meaning the compensation of others should not be used in these one-on-one discussions. These conversations also provide opportunities for praise, growth and an overview of opportunities for each individual employee.
In this article, we’ve looked at ways your company can improve compensation communication. By implementing a compensation strategy, you’ll have a framework for how to approach compensation conversations while also helping your employees and managers understand the investment your company is making in each of them.
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