Cool Down the Chatter About Pay
Managing & Communicating Salary Decisions Doesn’t Have to be Rocket Science.
Last week, we discussed the 2019 salary increase projections, as well as the importance of having a clearly defined and communicated compensation philosophy/structure. This week, we look more closely at the impact of not having a structure in place, particularly when it comes to managing and communicating salary increases.
If you do have a well communicated and consistently applied structure, then the task is straightforward. When your employees clearly understand how you handle compensation, including why they get the rate/salary they do and the circumstances under which they’ll get increases, pay isn’t at the forefront, even if they ideally want more money. It becomes a much smaller fraction of their concerns.
If you don’t have a structure or you don’t communicate or administer pay in a fair and consistent manner, even if employees are already paid reasonably well, compensation becomes a significantly bigger chunk of what matters and their work satisfaction overall.
Consider the following examples:
ABC Company’s employee handbook includes a detailed compensation philosophy that outlines: components of total compensation; market target; how often market research is done; and a commitment to providing annual standard COLA increases (i.e. the same percentage for all employees). They also have an incentive plan that details, with clear measurements, how bonus pay is impacted by performance. Although Jill would ideally like to make more money, she understands why she makes what she does and knows she’s treated equitably. So when COLA increases are administered in January each year, she’s appreciative and doesn’t expect more. And when she gets an incentive bonus, she knows she’s earned it because the measurements are clear. As a result, dissatisfaction with compensation doesn’t occupy her time – or yours.
Contrast this to XYZ Company. They don’t have a compensation philosophy and nothing is communicated to employees about how pay decisions are made. Although XYZ provides annual increases, they’re not attached to anything, and some get a few percent more than others with no indication of why. Overall it’s a subjective process and although intended to be confidential, every year at increase time there’s always disgruntled water cooler chatter. Even though Jack received a higher increase than his co-workers and is paid fairly, he doesn’t have anything to attach it to and so feels as displeased as his co-workers. His dissatisfaction will inevitably occupy his time – and yours.
It’s also important to consider how increases and/or bonuses are communicated. Again, if employees don’t understand the why behind them, their intent can fall flat and even serve to demotivate. If increases are based on COLA and only intended to address cost of living, then ensure employees understand this. Keeping in mind that there’s no legislation dictating COLA increases, this can be done in a way that makes them feel appreciated nonetheless.
Further, unless you have an objective way to measure performance and can clearly show why you provided 2% to one employee and 5% to another, keep it standard across the board. Don’t assume for a second that your employees won’t find out. If, however, you have an objective means to administer varying levels of increases, ensure (confidentially of course) those who get more or less understand why. As is the case for having an overarching philosophy, having a transparent and objective method for making and communicating decisions about increase amounts will reduce the chatter and improve satisfaction and thus, productivity overall. It really isn’t rocket science.