Thursday, March 21, 2013

Compensation 105: Pay Communications

Compensation Programs and Practices 2012, conducted by WorldatWork, found that 80 percent of organizations relay pay information to their employees via brief written or oral communications. This may leave us wondering, what would be the most effective way to communicate with an employee about his or her pay?  Is there just one right way to share this information? Are there legal considerations that impact pay communications? The focus for this issue of Astronology on compensation basics is Pay Communications.

Why is pay communication important? One Bloomberg BusinessWeek article explains that, “a pay-related communication from a manager has three times the impact on engagement, performance, and retention as that same communication coming from a central function such as HR.”  Pay communication is so critical, that how the information is relayed and by whom can impact an employee’s work contribution to the organization. The article also pointed out that only 10 percent of managers effectively communicate pay to their employees. While quite a few managers do not feel adequate in relaying pay information, these skills can be acquired through active learning training.

The human resources section of mentions that if employees cannot fully understand the organization’s compensation philosophy, it is a sure sign that communication has been done poorly. Although a manager may not be responsible for selecting and establishing the pay philosophy, they do play a significant role in executing on that philosophy. Managers, in a nutshell, should be able to:
  • Understand their roles and the value that they add when they communicate employee pay information.
  • Understand the organization’s pay philosophy and be able to explain it clearly.
  • Communicate the employee’s pay raise in such a manner that the employee feels rewarded and acknowledges that the organization values the employee.
One of the most effective ways to share compensation information is a formal meeting between an employee and his / her manager. Depending on the environment, or type of work done in an organization, e-mail or instant messaging may be popular choices in regular communication between workers. However, due to the sensitive nature of the subject of compensation, nothing demonstrates value more than a personable, one on one chat. It is said that 90 percent of how we communicate is through our nonverbal cues such as facial expressions and gestures. These nonverbal cues help in conveying sincerity to employees, particularly in delicate conversations surrounding pay.
  • Don’t fail to communicate the context of a possible pay increase. If pay increases are awarded by merit and contribution, clearly define what would be considered merits and qualifying forms of contribution.
  • Do explain why the employee may be receiving a pay raise. Be specific in his / her contributions.
  • Don’t inform employees of the percentage of the increase. In an environment where nationally the pay increase is at an average of 2.5%-3.5%, in the eyes of the employee such an increase may not be motivating.
  • Do give the employee the salary increase in a dollar amount.
  • Don’t compare one employee’s increase to another’s employee’s increase.
  • Do thank the employee for HIS / HER hard work and commitment, and express confidence in the employee’s continued contributions to the organization.
  • Don’t focus on why the pay isn’t larger. Do confer with HR if the employee requests more information on why the pay isn’t larger. Be able to clearly explain what criteria were used to make the decision on the employee’s pay.
  • Do follow up with HR with a written document to be included in the employee’s file regarding the amount of the increase.  In addition, a personal copy should be sent to the employee’s home address, or given to the employee in person.
With respect to this last “do,” in some cases there may be state laws that require not only verbal communication but also written communication of employee’s pay history. For instance, in 2011 New York introduced The Wage Theft Prevention ACT (WTPA), which requires that employers give written notices of wage rates to each new hire, all employees by February 1 of each new year, and any time an employee’s pay rate is changed.  Be sure to check your state laws for similar requirements, as what each notice must include may be different from state to state.

A comfortable time to have a conversation with an employee with respect to pay can be when the employee is first hired.  That initial conversation is only the starting point, however.  Such conversations must happen on an on-going basis, after the annual review with the employee.  The employee will be already anticipating the conversation, and such timing will facilitate both parties feeling comfortable to voice their opinions and also to be more openly heard.  In addition, the more information an employer shares with its employees regarding compensation philosophy and the reasons and criteria behind pay increase decisions on an on-going basis, higher levels of trust continue to build.  Such trust is essential for truly attracting, retaining, and motivating an organization’s human capital.

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