Communicating about Compensation

Compensation represents a significant expense for any organization. Do you communicate with your employees about how your compensation program works? While compensation is not the only reason people work or a high-level motivator, it is an important element in the “exchange” derived from the employment relationship. Employees are very interested in how they are compensated relative to their position, their performance, and their peers. 

You can maximize your organization’s return on compensation dollars spent by helping employees understand their pay relative to the organization’s objectives, strategy, results, compensation philosophy, market position, pay structure, and performance reward link. In the absence of information, employees may draw erroneous conclusions about how the organization values their jobs and their contributions as well as the overall fairness and competitiveness of their pay.

Especially as the economy improves and employee expectations rise, you need to help employees make the connection between the organization’s results, affordability, and compensation. Talk about compensation as another component of “total rewards” that includes employee benefits, work-life balance, career development opportunities, and professional growth.

Compensation, in a very concrete way, signals value. When employees understand the full context of their pay, they are more likely to appreciate its worth, how it is derived, and how they can affect it. In this way, communication increases the “motivational” return on investment that your organization aims to achieve from its compensation program.