Communicating Pay The Right way: why it matters & how to do it
Compensation can be a tricky topic What someone is paid has an enormous impact on his or her life, and can carry all kinds of implicit meanings. It can be the difference between Angela in marketing having the funds to allow her kids to join a second sport, and having to tell them not this year. It can be John the product manager having the vacation days to finally take that international trip, or having to postpone it for another day. It can mean Ashton feeling valued by her employer, or feeling like she should look elsewhere.
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A compensation package is made up of clear-cut numbers and policies, but the subject of pay is far from black-and-white — there are lots of emotions involved, whether positive or negative. This can make talking comp with employees stressful. Not to worry. This eBook exists to help you get pay-talk right. We’ll review the importance of effective compensation communication, discuss where breakdowns occur and of course, outline strategies and tactics for improving your organization’s pay communications. Ready? Let’s jump in!? Let’s jump in!
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Why Getting Compensation Communication Right Matters How an employer talks to employees about pay is directly linked to how engaged those employees say they are. Think about that: The way you communicate compensation — not just how much you pay, but what you say about it — has a significant impact on engagement, the ultimate employee-success metric.
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The Link Between Talking Pay and Employee Engagement In a PayScale study of 71,000 employees, we found that clear and honest communication around pay was a top predictor of employee sentiment (which includes things like “satisfaction and “intent to leave”). It had even more impact than the factors you’d typically expect to bump up engagement levels, like career advancement opportunities, employer appreciation and enthusiasm for the future of the company. As noted earlier, an employee’s compensation package comes with a lot of implications, one of them being how valued (or not) he or she is to the employer. And the way an employee feels about his or her compensation determines their level of engagement. How do you influence how employees feel about their compensation, and in turn, impact engagement? Get the comp-talk right.
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Most People Don’t Know Whether They’re Paid Fairly Our study showed that absent the data, people are often wrong about how their pay compares to what “the market” is paying. Most strikingly, two-thirds of people who are paid at market actually believe they’re underpaid. That’s a lot of people who feel undervalued, and it’s easily avoidable.
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Another big reveal of the study was that an employee’s perception of his or her pay is a strong indicator of intent to leave the company — as favorability of pay goes down, intent to leave goes up. People who are actually paid above market believe they’re paid: People who are actually paid at market believe they’re paid:
People who are actually paid below market believe they’re paid:
Below market 35%
Below 64%
At market
Above market
45%
21%
At
Above
30%
6%
Below
At
Above
83%
14%
3%
Sixty percent of respondents who believed they’re underpaid said they planned to leave, as compared to only 39 percent who believe they’re overpaid. The takeaway is clear: If your employees are paid fairly (or more), make sure they know it.
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Good Communication Mitigates Not-So-Good Compensation But what if they aren’t? What if what you pay is below market? No need to panic; consider this additional finding from the survey: Open communication about compensation can actually make up for low pay. Eighty-two percent of surveyed employees said they were still satisfied with their work even at belowmarket pay, so long as the logic for the pay rate was communicated. On the flip side, overpaying talent in an effort to retain them — without having the compensation conversation — does not pan out. The study showed it is more effective to pay at market rate and discuss the hows and whys of that rate than it is to overpay but stay mum. Communication really is the key.
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How Things Break Down Both the amount and the frequency of communication is seriously lacking in many of today’s organizations. Business moves fast these days, and we are not communicating at the speed of business. Take the annual performance review, for example. It’s still common practice for organizations to do a yearly evaluation with their employees — but so much changes in a year! It’s easy to imagine how perceptions and assumptions can get seriously out of whack when you’re only giving and receiving feedback once a year.
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The same is true for engagement surveys — most companies only do these annually. What if a respondent is having a bad day at work? What if they got crummy personal news? What if they’re in the midst of their leastfavorite project of the year? Perspectives ebb and flow, and measuring engagement just once every 12 months means you only get one snapshot, and it may or may not reflect the true mood of your workforce. Consider these findings from PayScale’s 2017 Compensation Best Practices survey. For a subset of questions, we asked employers to predict how their employees felt about key pay and engagement issues. We then asked the employees how they felt. The results were concerning — employers are not as in touch with their employees as they think they are. We call this “the corporate chasm.”
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Differences in Perceptions on Workplace Engagement Employees
Employers 20%
“I feel that I am paid fairly.”
CHASM 24%
“Employees at my organization feel they are paid fairly.”
44% 45%
“I feel appreciated at work.”
CHASM 19%
“Employees at my organization feel appreciated at work.”
64%
“There is frequent, two-way communication between managers and myself.”
55%
CHASM 8%
“There is frequent, two-way communication between managers and employees.”
63% 67%
“I have a great relationship with my direct manager.”
57%
“The way pay is determined at my company is a transparent process.”
23%
CHASM 10%
CHASM 8%
“My organization has a transparent pay process.”
31% 0%
10%
20%
30%
“Employees at my organization have a great relationship with their direct managers.”
40%
50%
60%
70%
RESPONDENTS WHO AGREE OR STRONGLY AGREE
It’s interesting, though perhaps not surprising, that the data suggest that a strong employee-manager relationship with healthy two-way communication is not necessarily enough for the employee to feel appreciated at work, or to perceive pay as fair and transparent. Is that because of the way managers are talking about pay? More on that later. 10
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3 Ways to Improve Pay Communications 11
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You can tackle the compensation communication problem from three different angles:
Increase Your Level of Transparency
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Increase Your Frequency of Communication
Train Managers to Talk Pay
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Transparency spectrum “Here’s what you get paid”
“Here’s how we use market data to determine pay”
“Here’s where your pay falls and where you can go”
“Here’s why we pay like we do”
“Here’s everything you want to know about everyone’s
What
How
Where
Why
Whoa!
1. Paycheck
2. Data Market Study
3. Plan Strategy Pay Ranges
4. Culture Manager Training
5. Open Salary Published ranges and salaries
Consider: Where is your organization currently? Can you move up? Can you commit as a company to increasing transparency in pay communications by one level? If you’re not already doing it, a great, tangible way to improve transparency is to provide employees with total compensation statements — a document that outlines all of their rewards, and ties monetary values to non-cash items (like PTO, health insurance, etc.).
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Communicate More Often Can you increase your frequency of performance reviews from annual to quarterly? Can you ditch performance reviews altogether and — gasp! — institute real-time, ongoing feedback? Maybe you simply encourage managers to regularly check the pulse of their staff. Maybe you invest in employee engagement technology specifically designed to consistently solicit and measure feedback. Different approaches will work for different companies, but whatever you do, make sure you’re communication levels are healthy.
Train Managers to Talk Pay Remember that seemingly weird finding that even when employees feel like they have a good relationship with their manager and solid, two-way communication, it still isn’t enough for them to feel they are appreciated and that pay at their organization is fair and transparent? It may not be so weird. It’s certainly possible that the managers really are that outstanding and an otherwise crappy corporate climate doesn’t drag down their relationships with their employees. It’s also possible, though, that managers are shifting blame to HR, saying things like, “I wanted to give you a raise, but HR wouldn’t let me and won’t tell me why.”
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One thing is for sure Most companies aren’t confident in their managers’ abilities to talk pay. Our survey found that less than one in five organizations say they are “very confident” in their managers for having tough compensation conversations (19 percent). But only 30 percent of surveyed organizations offer training to their managers for communicating about compensation. As managers are the main communicators of compensation, it only makes sense that to improve overall company pay communication, managers must be well-equipped to talk the pay talk.
So, which will you start with? Will you commit to increasing transparency? Will you get a consistent feedback loop going? Will you invest in manager training? Oh, you’re planning to do all three? Well then — hats off to you!
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About PayScale Creator of the world’s largest database of rich salary profiles, PayScale offers modern compensation software and real-time, data-driven insights for employees and employers alike. Thousands of organizations, from small businesses to Fortune 500 companies, use PayScale products to power pay decisions for millions of employees. For more information, visit www.payscale.com.
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