Sound compensation conversations are rooted in a clearly defined and articulated compensation strategy.

Compensation conversations are critical discussions to have with employees. Knowing how to frame these conversations, what to say (and not say), and leverage these conversations to improve employee engagement are all powerful skills to learn.

Here are some of the key reasons good compensation communication is important, followed by nine management tips for clear compensation communication.

The Importance of Sound Compensation Communication

The reality is that there is often a great deal of mistrust among employees about compensation discussions. There are several key reasons for that mindset.

First, most of these conversations occur in a vacuum, via one-on-one conversations between managers and employees. In some cases, there is not even a conversation; employees learn via a form letter that indicates pay adjustments.

Without context, people fill in the blanks themselves, making assumptions and misstatements that can spread like wildfire throughout an organization.

Sometimes, dissatisfaction comes about due to unrealistic expectations about compensation. If workers assume that their hard and good work will translate into bonuses or steep pay raises, especially when times are tougher, the actuality can be demoralizing.

Finally, money is a deeply emotional and personal topic and has dramatic impacts on employees and their families.

Done effectively, however, compensation communication can have profound benefits on a company and its employees. Done correctly, these conversations can improve:

  • Awareness of company priorities, strategies, and goals.
  • Motivation for employees to excel and meet those stated goals and objectives.
  • Understanding of difficult decisions that need to be made during difficult economic conditions.
  • Appreciation for the work, dedication, and success of employees.

Below are some tips to help develop and deliver a sound compensation communication strategy.

  1. Develop a Solid Compensation Strategy. Compensation communications can fall apart without an overarching strategy that frames compensation. This strategy should be aligned with business strategy and modeled by and embraced by top leadership. The strategy should also be clear about whether pay for performance, competitive pay positioning, salary and wage management (such as levels, grades, or bands), and bonus structures are in use. Finally, the timing of adjustments and criteria to be used need to be defined.
  2. Understand Applicable Laws. Compensation changes often are bound by a union or individual contracts. In addition, there are regulatory concerns to factor into the compensation equation. These compensation-related laws should be factored into both the policy and the communication. They include the Fair Labor Standards Act, Equal Act, Civil Rights Act, and the Davis-Bacon Act.
  3. Demonstrate Transparency. Employees need to understand how compensation decisions are made in order to consider them fair and just. Communication should be open about how base salary increases, bonuses and other incentives, and promotions are handled.
  4. Manage Expectations. Clear communication can help to manage expectations and should be done not just annually but regularly during the year.
  5. Show Opportunities. Employees want to know what they can do to receive higher levels of compensation. Communications should make clear how employees can boost their pay growth, both in their current position and in other positions within the company. When integrated with a robust professional development program, these messages reinforce the company’s investment in employee development.
  6. Provide Context. With a few clicks in your favorite search engine, you can find many sites that will detail compensation levels for various positions at public and private companies. It is important for companies to explain how it is positioning its pay within the market, the region, and the job scope.
  7. Help Managers. Many managers are uncomfortable with having specific compensation discussions with their direct reports. That is why human resources departments should provide training, coaching, sample scripts, and practice conversations to help managers deliver messages effectively.
  8. Diversify Messages Consistently. You may need to adjust your communication depending on the audience – salaried, hourly, union, executive. While the specifics may be different, the broader messaging should be consistent.
  9. Keep It Simple. If your ongoing communication is consistent and clear, it can be used as a reference point during individual conversations. That context allows for managers to be transparent and straightforward with their employees.
  10. Keep It Personal. You want compensation conversations to be focused solely on the employee. Obviously, there should be no conversation about others’ compensation adjustments. The talks should also provide an opportunity to praise performance, reinforce strengths and achievements, and discuss opportunities.

Compensation conversations are more effective when they are personalized and simple.

At The Lindenberger Group, we help companies with human resources strategy and practice, including help with compensation strategy and communication. We advise companies about the importance of strategic HR policy. We also provide outsourcing HR services to support smaller HR shops in Philadelphia, New York, New Jersey, and nationwide to allow in-house staff to focus on core tasks. Contact us today to learn more about The Lindenberger Group’s services.