- Compensation is HR’s biggest challenge. HR leaders in Payscale’s 2024 Compensation Best Practices Report listed compensation as a greater challenge than recruitment, retention or engagement.
- Pay communications is key. Have a plan for communicating pay structures, processes and decisions to employees and candidates. Then, train your managers to effectively discuss pay.
- Start with compensation strategy. Formalizing a company-specific philosophy and approach to compensation is a vital stepping stone to effective pay communications.
Pay transparency is now considered table stakes and an organizational best practice, according to Payscale’s 2024 Compensation Best Practices Report, with 60% of surveyed organizations publishing pay ranges in job ads (up from 45% last year). However, 50% of HR leaders surveyed for the report listed compensation as their biggest challenge — a percentage that exceeds those for recruitment (44%), retention (42%) and engagement (37%).
“Ratcheting” salary offers to woo talent, rising inflation and cost of living, greater emphasis on pay equity, and pay transparency laws are all contributing to increased scrutiny surrounding compensation, said Ruth Thomas, pay equity strategist at Payscale.
Effective pay communications — taking pay transparency and a formalized compensation strategy into account — is one key to getting it right.
“Employers always say, ‘We pay competitively and fairly.’ But how do they do that?” said Nancy Romanyshyn, senior director of total rewards strategy and solutions at Syndio. “Employees, understandably, want to know more. What a lot of employers are doing now — in terms of attracting, retaining and engaging [talent] — is explaining. It’s educating.”
Why Communicating About Pay Matters
Indeed, communication shortfalls can contribute to HR’s headaches related to compensation.
Although 77% of companies feel they pay employees fairly, many of their workers disagree, according to Salary.com’s 2024 Pay Practices Survey, signaling a significant disconnect in pay communications.
Salary.com, which recently released its 10 pillars of effective compensation, notes that communicating about pay allows companies to collaborate with employees to build a compensation plan that best serves the entire company.
“Pay transparency fosters employee understanding around pay programs and practices, which, when perceived as fair, provides several benefits — from boosting employee trust and morale to attracting top talent,” said Courtney LeCompte, vice president of compensation consulting at Salary.com.
Pay communications may include holding conversations about pay ranges, sharing how salary increases are determined or providing total rewards statements (which 58% of companies do), Thomas said.
“When employees feel valued and aren’t spending time worrying about whether they might be underpaid, they’re more likely to be fully engaged in their work,” she said.
Learn: Strategic Communication in Total Rewards
Effective compensation communications plans should seek to be proactive rather than reactive. They should fully span total rewards — including areas such as sales incentives, equity shares and median pay gaps.
Pay communications should be accessible and understandable, and presented in a variety of ways — through emails, webinars or online modules, self-service information in an employee portal, and one-on-one meetings or open office hours, Romanyshyn said.
“Being proactive and communicating to employees how you value their role, their impact, your expectations around how you can share success together, how they can advance in your organization — these are things employees want to hear, and you want to be the one telling them,” she said.
Don’t Overlook Manager Training
Only 51% of companies currently train managers on pay communications, according to Payscale’s report. Managers, though, play a key role in successful pay communications.
“This is a significant shift in mindset from the days when HR or compensation often distrusted managers to communicate on pay,” Thomas said. “Now, it is all about enabling them to have meaningful pay conversations.”
At minimum, Thomas said, managers should be trained on:
- When to have pay conversations with employees, and what to cover
- How much managers can say about how compensation is determined
- What questions or scenarios to pass to HR
Salary.com’s LeCompte added organizations should also provide managers documentation of the business’ compensation strategy and a manager FAQ document related to compensation communications.
Comp Strategy Drives Pay Communications
Effective pay communications should start with having a formal compensation strategy or philosophy that aligns with the business goals and ensures consistent, equitable implementation of pay decisions across the company.
The new Payscale report found only 53% of organizations have a formal compensation strategy in place, and another 21% plan to build a strategy for the first time this year.
Research: Compensation Structure Policies and Practices
“Mature compensation management practices, which begin with compensation strategy and equitable pay structures, are no longer optional,” said Amy Stewart, associate director of content at Payscale and author of that company’s new report.
Conducting a pay equity analysis is a key aspect of a mature compensation strategy. Payscale found that, among industry sectors, finance/insurance and engineering/science led in this regard, at 72%, compared to only 42% of real estate/rental/leasing companies.
“When stakeholders have all the information necessary to make good decisions, then unconscious bias is reduced,” LeCompte said. “Pay transparency and pay equity are key components of a modern compensation strategy.”
Failing to have a formal compensation strategy in place can reduce employee trust and create inconsistencies in compensation practices throughout the company, Romanyshyn said.
“Your human capital is core to your business; it’s one of the biggest spends you have operationally,” she said. “How can you not have a plan for how you’re compensating?”
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