Why it’s important to communicate compensation decisions clearly to employees

By Derrik Deyhimi,

Most managers talk to their employees on a regular basis about upcoming projects or how they're doing with their job. However, there's something that managers may neglect to mention that could affect performance and even retention: how they come up with pay decisions. What's missing from the conversation in helping employees understand why they have or have not received compensation increases could result in disruptions and drops in productivity in the workforce.

Some companies may not be effective in telling workers how they came to the conclusion of a pay raise, which is not only confusing to employees, but causes them to have doubts about working for their employers. A recent survey by company engagement firm TINYpulse found many workers do not feel recognized or valued at their current job.

A little over 1 in 5 employees said they were strongly valued at work and two-thirds of workers said they don't have solid opportunities for professional growth at their employer. Lack of pay raises and other opportunities to earn more compensation could contribute to this feeling of dissatisfaction with their existing employers. When employees receive greater levels of compensation, either through merit increases or incentives, they feel as though their organization rewards and recognizes them for their job well done.

Retention might also hinge on pay. A survey of chief financial officers by staffing firm Robert Half found the leading cause for workers to quit is insufficient salary and benefits for both employees and CFOs. The survey found 38 percent of employees would leave a job because of an inadequate salary and benefits. 

Communication about pay
However, even top rewards professionals know that there's more to compensation than simply handing out more money. There's also the matter of telling workers about the thought process that goes into giving these pay raises, which some managers may not be prepared for, especially if employees receive a smaller compensation increase than they were expecting. This is the case for much of the workforce in Washington, D.C., and elsewhere, The Washington Post reported.

"Simply offering a competitive salary and annual bonus is not enough to win the war for talent," said Laury Sejen, managing director of rewards at Towers Watson. "Employees believe that employers are falling short in how pay decisions are made and that there is much room for improvement."

A void in communication between management and workers about pay could cause stress among the workforce as employees may feel as though they are not compensated fairly for the work they are putting in. Not being able to communicate their decisions regarding pay may be a sign of poor management, which could be a big factor in why workers quit. 

The Robert Half survey found 16 percent of workers said they would quit because of their dissatisfaction with management. With some workers becoming motivated to quit because of poor management, employers should consider how they can improve their communication about pay decisions and offering more support for employees to let them know they are valued at the company. 

Tips for talking about pay decisions
As managers think about the best way to discuss pay decisions with workers, they could look to gathering and collecting data about pay in the company and elsewhere. 

Robert Half suggests that management look at the salaries companies in the industry are paying to ensure they are keeping up with the market. 

"Managers should regularly benchmark salaries against those of other companies in their region and industry to ensure they are at or above market standards," Paul McDonald, senior executive director at Robert Half, said in a statement. "While many factors contribute to turnover, competitive pay and benefits can be the difference when it comes to retaining skilled talent."

In addition to researching industrywide compensation levels, companies could also collect information using sales compensation software to make sure that they have historic data to back up their pay decisions when talking with employees. 

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Derrik Deyhimi