Compensation Administration

Want an Effective Compensation Plan? Transparency Matters

At some point along the way, you’ve probably heard a comment about, talking the talk vs. walking the walk, with the implication being that action is more important than words. In a lot of ways that might be true. When it comes to compensation, however, talking the talk is pretty important, too.

Salary

It’s not enough to have an effective compensation plan if it is something of a mystery to employees how their pay rate is determined. Let’s face it, employees are going to talk about everything from the range of their benefits and how much they’re being paid to which supervisors are difficult to work for and what the management team might have coming down the pike. And the less they actually know, the more likely it is that misinformation and speculation take on a life of their own, which is why it’s important to get ahead of the organizational grapevine and communicate comp and benefits information to employees in as transparent a manner as possible.

If your comp plan is not ready for prime time viewing, then get it in good enough shape to be shared with employees—or at least parts of it like pay grades and salary ranges. Maybe even go a step further and ask employees for input while you’re developing the plan. That doesn’t mean they should pick their own pay rate but it can be good to get their input regarding the kinds of benefits and incentives that motivate them to perform at the highest level.

Preparation is Essential

Pay and benefit programs are most effective in attracting, motivating, and retaining employees when they are part of a complete compensation strategy targeted to the workforce. Employers should determine what they can afford to spend on pay and benefits and what components are needed to accomplish the specific goals of their compensation strategy. These strategic goals, however, cannot be achieved unless employees understand the components of their pay and benefit programs.

Before you talk with employees about compensation, prepare a written overview that explains your organizational pay and benefit program’s policies and procedures. If you don’t already have one, a good place to start is to develop a pay philosophy/strategy. (You can find a template here.) If you do have one, make sure that the document contains a statement regarding your organization’s compensation philosophy, followed by details of the pay strategy that include:

  • Cash and noncash compensation (including job grade structure/ranges if applicable)
  • Compensation plan review
  • Base salary management
  • Performance ratings
  • Salary increases
  • Incentive pay

If your organization utilizes a metric based program, post goals for all to see and provide periodic updates on performance against goals rather than waiting until year-end, particularly if performance is poor and/or goals are not being met.

You’ll also need to determine, and be prepared to discuss with employees, how pay decisions are made. For example, is your pay structure based on market data or internally driven? Are pay raises cost-of-living increases, tied to individual or business performance, or a combination of those elements? Employees also want to know what’s in it for them and how they benefit from the pay plan choices management has made.

Document who gets to see salary detail, which parts of it are private and why, the levels of security needed, and who has authority to approve and/or make changes to the comp and benefits plan.

Communication is Key

Whether you’re conveying information about comp and benefits to the CEO, the management team, a single employee, or the entire workforce, it’s a good to have a clear idea of what you’re going to say and to practice how you plan to say it beforehand.

The meat and potatoes of your preparation will be tied to the audience as well as to the specifics you’ll be presenting. If you’re having a one-on-one with an employee, be sure to conduct that meeting in a confidential area, share details about the program that are specific to the employee, and provide a total compensation summary he or she can review later.

If you’re making a formal presentation in a group setting, a slide show detailing comp and benefit plan features can be a helpful aid, along with documentation such as a benefits summary that provides an overview employees can take with them.

Be open about goals and accomplishments, including missed goals and what to do to get back on track, as well as performance improvement opportunities. Whether it’s a one-on-one chat or a group gab fest, be sure to allow time for questions and don’t worry if you don’t have all the answers, you can always come back with them later.

Follow Through is a Necessity

Compensation and benefit plans should be reviewed and communicated to employees periodically (at least annually is a good rule of thumb) and allow for revisions that improve the programs. A good communications program consistently informs employees of the utility and value of the pay and benefits they receive. Poor communication results in employees that take their compensation for granted.

Sharon McKnightSharon L. McKnight, CCP, SPHR, draws from more than 20 years of management experience, including 6 years as a director of human resources, to develop compensation administration tools and write about compensation issues. Her experience in both operational and HR management provides her with a practical approach to providing online resources that address the challenges facing compensation and human resource professionals.

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