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Pay programs: communicate, communicate, communicate!

February 6, 2015

By Kevin Marrs, courtesy of SBAM Approved Partner ASE

It may come as no surprise to anyone who tracks these sorts of things, but most employees do not understand their organization’s compensation philosophy.  Those are the findings of a recently released survey from WorldatWork, the professional association of compensation professionals.  The survey, Compensation Program and Practices, revealed that just 28% of employers believe that all or most of their employees understand their company’s compensation philosophy.

Why is that statistic important?  Consider what employers spend as a percent of payroll to ensure their wages are competitive.  Those dollars may not be having their desired effect or return if employees perceive the company’s compensation program as arbitrary or capricious. 

Why is this occurring?  Few employers, particularly smaller ones, have well-defined compensation philosophies that outline for employees how their pay is determined. According to the survey, fewer than two-thirds of the participating firms (65%), have a written policy describing the companies approach to compensation.

What can employers do?  First and foremost, it is important for the organization to map out how it will administer compensation in the organization.  Compensation philosophy documents should address whom the organization benchmarks itself against, where it targets its base salaries, and how it evaluates jobs (i.e., market-driven or classification/job evaluation).

Most importantly, employers need to spend more energy communicating with employees regarding pay.  First, employers need to increase the frequency of these communications. The survey suggests that at most companies, employees typically receive information regarding pay once in a 12-month period. The WorldatWork survey suggests that individual discussions with supervisors are the most common approach to communicating with employee about the pay program.  If that is the case, supervisors need to be very well informed about the organization’s compensation philosophy.

Additional Highlights from the Survey:

  • Nine of ten (92%) companies have a compensation philosophy, with 65% having a written policy and 27% having an unwritten policy.
  • Four of five (82%) organizations use bonuses, which is the most frequently used variable pay plan for some or all employees.
  • A majority (59%) of base salary structures for employees are still adjusted once a year, with 14% of companies adjusting their structures once every two years. This is a five-percentage point increase from the previous two surveys.
  • In 2014, as in 2012 and 2010, moderate variations (i.e., top performers receive 1.5 times the average increase) is the most typical variation in salary increase between average and top performers.
  • Most (52%) respondents indicated that salary structures are defined by geographic regions; job category/role ranked second at 44%, which is a notable increase from 23% in 2012.

The challenge of communicating the important elements of an organization’s pay philosophy is perennial and universal. Every organization faces it, all year round. The evidence consistently shows that most organizations do not do it well or, in some cases, at all. The reason or reasons may be obvious—compensation philosophies can be simple in concept but are always complicated to communicate. But the better they are defined and mapped out to begin with, the less difficult they are to communicate to the front-line leaders who are the key players in getting the right message across to employees.

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