- Inconsistencies in communication. Most U.S. organizations surveyed are communicating different components of their pay program information to employees.
- The merits of quality pay communication. When organizations educate employees about how pay is determined, employee trust in the organization increases by 10% and pay equity perceptions increase by 11%.
- Barriers to effective communication. Managers’ top barrier to communicating more openly about pay is the fear of employees’ negative reactions.
While a majority of U.S. organizations surveyed are communicating pay information to their employees through their managers, only one third of them said they are effectively educating those managers on the topic.
WTW’s "2023 Pay Transparency Survey" of 448 U.S. respondents found that most organizations are communicating different components of their pay program information to employees.
Six in 10 are disclosing job levels to their employees, and almost half (48%) are communicating how individual base pay is determined and progresses. Over one-third of companies (36%) are disclosing individual pay ranges to employees, but an even larger number (46%) are planning or considering doing so in the future.
But while managers are the most commonly reported channel for communicating pay program information (84%), only 38% of organizations reported being effective at educating managers on the topic.
Those numbers are mostly in line with WorldatWork’s “Pay Transparency Study” from 2019, that was supported by Mercer.
The benefits of communicating clearly on compensation are clear and measurable, according to recent Gartner research: When organizations educate employees about how pay is determined, “employee trust in the organization increases by 10% and pay equity perceptions increase by 11%.”
So how can organizations make that happen?
Breaking Out of the ‘Black Box’
Part of the struggle is that employers simply haven’t needed to communicate about pay previously, so many of them lack any kind of organized structure and framework to communicate effectively, said Sara Vallas, senior director, employee experience, WTW.
“Our research shows that the vast majority of employers rely on managers to communicate about pay,” she said. “However, they have kept compensation in a ‘black box’ and have not prepared leaders and people managers to talk about pay with employees.”
It’s also worth noting that compensation is a sensitive topic, she said.
“At a personal level, many people feel uneasy when it comes to talking about pay because it’s so closely tied to perceived status,” she said. “In fact, we see in our research that the top barrier to communicating more openly about pay is the fear of employee reactions.”
On the flip side of the communication coin, companies can also risk a spike in turnover and slump in engagement if they implement a pay transparency program without first preparing their managers to discuss it with their teams.
“If a manager is unprepared, the resulting conversation could leave the employee feeling devalued, damaging their productivity and commitment to the company,” Vallas said. “If the employee then talks with colleagues or posts on social media, the damage to employee engagement multiplies and could put your company brand at risk.”
Action Items
In order to create a coherent conversation on compensation, leading organizations now offer tailored training for managers on their role in how the compensation program works and how to communicate it effectively.
Organizations also do better when there is a foundational level of understanding among all employees on the compensation philosophy, the program design and how decisions about pay are made, Vallas said.
“This background information should be shared first, so that the ‘manager conversation’ doesn’t happen in a vacuum,” she said. “With this foundation in place, managers can play a more focused role in supporting their teams with understanding their personal situation.”
The most common misstep companies make when it comes to communicating on pay is sharing pay ranges without any context, according to Vallas.
“The best employers step back to explain what previously happened only behind the curtain, including how the company positions employee pay relative to the market, how pay ranges are developed, or how decisions about individual pay are made,” Vallas said. “To do this well, employers need a solid infrastructure and governance model around compensation.”
Explaining Opportunity
While the compensation conversation is of course about explaining pay, it’s also about explaining opportunity, said Nancy Romanyshyn, Syndio’s senior director of total rewards strategy & solutions.
“Once employees find out what they’re compensated and why, then they want to know how to advance at their company,” she said. “What do other roles pay? How do they get promoted to a higher-paying level or role? What stands in their way? Do they have equal access to move into higher paying roles?”
By associating pay with opportunity through building career paths with closer connections to pay (e.g., salary structures for job functions), employers can create a culture of trust and empower employees to take control of their careers.
“These organizations ensure they have an ongoing dialogue with employees about career growth, helping them cultivate the talent they need by using the underutilized resource of the talent they have,” Romanyshyn said.
Nonetheless, that dialogue must begin somewhere, Vallas said.
“Start early,” she said. “Take the opportunity to set the narrative about compensation before your employees fill in the gap.”
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