Money talks: telling employees about compensation changes can be easier if you frame the message properly

HR Magazine,  Sept, 2004  by Lin Grensing-Pophal

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Among the most emotionally weighted issues for employees is compensation. It's not just about livelihood--the basic needs and maybe some "extras." It's also about self-worth. Despite the best efforts by organizational and HR leaders to persuade employees that the value represented by pay is the value of the position, not the value of the person, employees

have a hard time believing it.

So it's no surprise that when employees hear about changes in the organization's compensation structure, they get worried. Whether the changes are caused by market adjustments, pressure on profits, or a merger or acquisition, they are rarely viewed in a positive light.

Giving employees anything but the best news about compensation is one of the most challenging communication tasks a company can face, and HR is typically at the center of the process--striving to find the best ways to convey the message.

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"Any good consultant knows that the best answer to the question of 'What's the best way to communicate compensation changes?' is, 'It depends,'" says organizational change expert Carol Kinsey Goman. It depends on the culture, the extent of the changes and other events that may be occurring in the company, says Goman, president of Kinsey Consulting Services in Berkeley, Calif.

Laying out compensation changes to employees can be done successfully, experts say, if the process is carefully crafted and grounded in company business principles, is fully supported and articulated by managers, and offers channels for employee feedback.

The Heart of the Matter

For HR professionals, the core question is about transparency--how much to tell employees.

"I think the first misstep a lot of organizations make is they misjudge how much they should share," says Mary Jane Sinclair, SPHR, of Sinclair Consulting in Morristown, N.J. Many companies, she says, believe "that 'less is more.' They think if you don't tell folks, then they can't challenge the system."

However, assuming that nobody knows about or is speaking about salaries, she says, is not the answer either because not disclosing information feeds the rumor mill.

In contrast, being transparent helps companies at a time when employees' trust in their employers may have slipped. "We're seeing more employers providing a lot more information about the integrity of the salary program--the integrity of the base pay program itself, how it was developed, the rigor of the competitive analysis that went into it--[and] providing a lot more information about job families and how the whole thing is structured," says Deborah Hart, a Boston-based principal at HR consulting firm Towers Perrin who works with employers on compensation issues.

Engaging in an open discussion about how the company structures compensation "demystifies" the process for employees, Hart adds.

Kathy Kibbe, a division practice leader for communication in the San Francisco office of HR consulting firm Watson Wyatt, cautions that transparency is "less about everybody knowing what everyone else is being paid, and more about 'How am I personally affected by this compensation program?' and 'What behaviors are expected of me?' and 'How can I move in this organization paywise and careerwise?'"

At Capital One, a global credit card firm based in McLean, Va., Sallie Larsen, HR director, says the company's compensation transparency gives managers and associates direct access to information such as compensation ranges for all job categories at the company.

"They can look up and down the corporation," Larsen says. "They can see where they're at, and where other opportunities might be. And they can begin to steer their own careers in terms of compensation."

Building a Solid Base

For a message about compensation changes to be clear, it has to be built on a two-pillared foundation--the organization's compensation philosophy and the context for the change.

And at every turn, your organization's compensation should be driven by an overriding philosophy, Sinclair says. "If you don't know whether you want to match, lead or lag the market, you can't begin to communicate because you don't know what you're communicating.

"Go back to the basics and look at your compensation system and say, 'If this is what we espouse--we want to be a market leader--is it true in all cases, true for all job classifications, all locations?' Unless you've done that overarching review, I think it's really difficult to determine what to communicate, when and how."

That philosophy, emphasizes Ellen Shedlarz, chief talent officer at communications firm Hill & Knowlton in New York, should be communicated not only by HR but also by others at the top of the organization, and it should be backed up by action. "You can't have a philosophy and turn around and do something totally different. Nobody is going to trust you after that."