Preparing Managers for Productive Communication About Pay

Preparing Managers for Productive Communication About Pay

Mercer's Human Capital Perspective | Volume 4, Issue 4 - 2010

 

For many managers, communicating about compensation is an uncomfortable part of the job, and today's austere budgets aren't making the task any easier. Debra Besch, a Principal in Mercer's Workforce Communication and Change consulting business, discusses difficulties inherent in the situation, challenges posed by today's compensation budgets and steps organizations can take to prepare managers for positive, productive communication about pay.

 

Q: What is the landscape today around communicating with employees about compensation? Why is it so difficult for managers to have these discussions?

 

Debra Besch: Communicating about compensation has always been challenging. It requires specific skills and knowledge to make good compensation decisions and then to effectively convey those decisions to employees. This difficulty has been exacerbated by the recent economic downturn and its impact on compensation - from low to no salary increases and diminished short-term and long-term incentives. No one likes to deliver hard messages about pay, but in the past few years, a lot of managers have had to do it. With an increasing emphasis on performance differentiation and linked rewards, combined with continued pressures on compensation budgets, these kinds of discussions are likely to continue.

 

Q: How are expectations changing for different stakeholders - the organization itself, HR, line managers and employees - around communicating compensation?

 

DB: The key change for the organization is recognizing that compensation communication cannot be left to chance. It is a managerial capability that must be deliberately developed and reinforced over time. This means laying a foundation that will enable HR to do a better job of supporting managers and will help managers do a better job of both making compensation decisions and communicating those decisions to employees clearly and honestly.

 

Organizations also need to help employees understand the fundamental concepts about how pay in general and their pay specifically is determined. This is important because there is significant research that correlates employees' understanding how pay is determined with their satisfaction with the amount of pay.

 

HR's role in compensation communication is also changing. Rather than having responsibility for policing compensation decisions, HR is increasingly expected to serve as a consultant to leaders and managers struggling to make difficult decisions or improve communication techniques.

 

For line managers, the expectation that they, rather than HR, will take the lead role in - and accountability for - making compensation decisions and communicating those decisions to employees is greater than ever. To effectively manage performance and rewards, today's manager needs to be able to say to employees, "I understand your performance, I've communicated your performance, and this is the increase you're getting based on these criteria." Further, a manager needs to be able to take on the difficult conversations, address employees' concerns about their compensation and be able to credibly discuss rewards in the context of the total employment value. This is still a major shift in many organizations where managers have traditionally taken a more passive role, falling back on explanations like, "I would have given you more, but HR wouldn't let me."

 

Finally, employee expectations need to be managed so that employees are more prepared for and receptive to pay messages. In general, organizations continue to raise the bar on employee performance without necessarily offering a commensurate increase in rewards. Employees need to be educated so they can understand this reality across organizations and know what level of performance will result in increased compensation.

 

Q: What steps can each of these populations take to make these changes happen?

 

DB: Organizations can start by conducting some baseline research to identify what HR, managers and employees currently understand about compensation, both in terms of the concepts of market competitiveness and equity and also in terms of the processes, tools and resources that exist in the organization. This research will provide guidance about the types of training and education that may be required for different populations within the organization.

 

Next, the organization can develop a formal compensation communication and training strategy. This strategy should specify how transparent the organization wants to be about compensation. For example, does the organization simply want to communicate key  compensation concepts to employees, or does it want to reveal the entire salary structure? And over what time period?

 

The strategy should also delineate how HR and line managers will be trained to perform their responsibilities. After all, neither HR generalists nor HR business partners are necessarily compensation experts, while most line managers come into their roles without being taught how to make or communicate compensation decisions. Both HR and managers will need to be educated about fundamentals such as the company's compensation philosophy and the mechanics of compensation programs. In addition, HR will need training on effectively supporting managers through providing market data or good evidence supporting the equity and competitiveness of compensation. Meanwhile, line managers will need specific training on what content to include in their conversations with employees, the degree of transparency expected and how to talk about compensation without using confusing jargon.

 

Third, the strategy should specify the kinds of communications and training that will be provided directly to employees. For example, the organization might want to present employees with simplified "Compensation 101" courses that cover key concepts about how pay is determined and how the incentive plan works. Our experience has shown that this type of direct-to-employee communication is an important adjunct to information from managers and helps employees hear the messages from their manager in context.

 

Finally, leaders have to model good compensation communication for the rest of the organization. They need to have the right kind of conversations year-round with their own direct reports, who can then cascade that positive behavior throughout the organization.

 

HR leaders can also take steps to enhance compensation communication by embracing their new role and becoming more consultative and supportive of line managers. HR must be willing to help managers make difficult decisions and provide them with reinforcing coaching. In order to do all this, HR must take advantage of all the training and resources the organization makes available.

 

Q: With all their new responsibilities, what else can front-line managers do to make discussions more fruitful?

 

DB: One thing they can do is ensure that they're accessing all the available resources on compensation. This may include consulting with their HR partners or with other managers to think through decisions and determine the best way to handle difficult conversations, such as talking with a high performer who is getting a low increase. In addition, managers should take the time to anticipate the kinds of concerns that may come up in compensation discussions with employees and prepare accordingly.

 

Some organizations have created online sites where managers can access information and salary planning tools and can exchange ideas, questions and best practices with other managers. Another thing we see emerging is the use of peer-to-peer communication, where role-model managers are recruited to help educate their peers.

 

It's also important that managers communicate with employees year- round rather than waiting until the end of the year. By keeping an eye on the organization's performance and the implications for compensation well in advance of year-end decision making, managers can help employees develop realistic expectations and avoid major surprises.

 

Finally, managers can make compensation communication more productive by exploring what other kinds of rewards are valuable to employees. While all employees want to be paid what they think they're worth, individuals also value other forms of rewards, such as recognition or the opportunity to be exposed to other parts of the business. When managers think broadly about rewards and research what employees want, they can help employees decouple their perception of their self-worth from their pay and improve compensation discussions.