Author(s): Joan M. Rennekamp, SPHR
Published: 09/01/2007
Don’t be fooled. Although we have all read the articles and studies about time off and flextime becoming more and more important to today’s workforce, an employee’s pay rate is always a prime concern. Pay decisions communicate in a very direct way the employer’s beliefs about its relationship with individual employees and various employment positions.
Watch out! Employees read between the lines.
Employees will usually infer several "messages" from the compensation they receive, such as the importance of the position to the organization (e.g., some employees equate higher pay with higher importance); the importance to the organization of being competitive with the market (e.g., what the organization’s competitors are paying their workforce); and how committed the organization is to "fairness" (e.g., male and female employees are paid consistent rates).
Employers who attempt to "cut corners" with regard to pay decisions generally are rewarded with a disgruntled workforce. However, sometimes it’s not poor decisions but rather poor communication that results in employee dissatisfaction. Resolving a communication problem begins with making sure you have clear information to communicate. Consequently, the manager who has a seat-of-the-pants approach to identifying pay rates generally will not have any clear or coherent information to communicate to employees. Employees in these organizations will not have confidence that they are being paid "fairly" and, absent other incentives to stay, may leave for a workplace that pays more attention to pay issues.
On the other hand, the manager who makes a conscious effort to identify appropriate and objective salary surveys or market indicators that drive pay decisions will be in a position to inform employees about specific procedures and criteria used in establishing pay rates. When employees are given a general sense of the types of information that are considered, and how often employee pay rates are reviewed, they will have a greater sense that pay issues are being addressed in a professional and objective manner by their employer. That is not to say that managers should necessarily inform employees about the specific details of the plan: what the surveys say, what the pay ranges are for other employees, etc. However, sharing information about the process generally can be helpful for employees and can be a good retention tool for critical employees.
Keep open communication
There are several ways in which even a good compensation plan can be diminished by poor communication:
- "Bunching" compensation increases so an employee cannot ascertain what the increase represents. Usually employers give pay increases for one or more of three reasons: a change in market indicators, performance recognition, and cost-of-living changes. Increases based on any of these factors must be communicated clearly so employees know what they represent and, to some extent, what to expect in the future. A market increase that is misinterpreted as a performance increase, for instance, can send the wrong message altogether.
- Eliminating or reducing one type of increase because the employee has just received a significant increase in another area. For example, the employee who has just received a substantial increase because of a significant promotion should still receive other types of increases for which he or she is eligible. All of the positive and supportive feelings that an employee has after receiving a promotion could be eliminated in "one fell swoop" by the feeling that the employer is now shortchanging the employee.
- Misconceptions of pay differentials between individuals. If you use pay ranges and place employees within the range based on a certain criterion, tell the employees what that criterion is. Do you pay based on educational achievement? How about experience? An uninformed female employee who wonders why she is the lowest-paid employee in her position might assume the employer is discriminating against women, when in fact her pay is based on her years of experience performing similar work. Although most employers do not want to share individual pay rates with other employees, the employer should assume that employees are sharing that information. Giving the employee the tools to assess whether he or she is appropriately paid can provide the answer to questions before they arise, and can help to avoid incorrect assumptions.
Practical Significance
When employees better understand their employer’s compensation program, it lowers the risk for misunderstandings involving pay issues. To that end, basing pay decisions on specific and readily identifiable criteria can aid employee understanding of those decisions. As with so many other areas, the key to avoiding the creation of a disgruntled workforce is effective communication of an employer’s policies. Putting thoughtful effort into your pay decisions can substantially aid in communicating these decisions effectively.
Joan M. Rennekamp is a human resources professional in RJ&L’s Colorado Springs office, where she works with attorneys in the firm’s employment law practice area, providing human resource assistance to clients. With more than 25 years of experience, she provides human resources advice to clients as a non-attorney in a wide variety of areas, including policy development, handbook design, compensation philosophy, and performance management assistance and training. She has experience with many organizations, including health care, governmental agencies, for-profit companies, religious organizations, and nonprofit organizations. She can be reached at 719-386-3009 or by e-mail at jrennekamp@rothgerber.com.