It’s getting to that time of year when we communicate pay outcomes to our colleagues. I often wonder if any participant really enjoys the process. As reward practitioners, it’s that painful part of the cycle that comes at the end of an often-exhausting review process; managers are often unprepared or feel unequipped to have meaningful conversations and employees are sometimes left frustrated and confused.
Yet this stage is a critical opportunity in the talent lifecycle to demonstrate how you value your employees. So why is it so hard to communicate pay and why do we so often get it wrong?
The pay taboo
Firstly, pay is ultimately money and people don’t generally like talking about money; it’s an uncomfortable and often taboo subject. In fact, you could say that not discussing pay is a social norm for most of us. How often do you broadcast to your friends and family how much you earn or your net worth? So, if you are uncomfortable talking with your nearest and dearest, you can also understand why we feel uncomfortable talking about it in the workplace.
Pay also has very personal implications for employees. What you earn ultimately impacts your livelihood and lifestyle and not having enough raises issues of financial dependence, insecurity, and even survival. Pay can quantify worth with rate-of-pay determined by the skills and experience an employee brings to the table. Add to this the notion of performance-related-pay and you can see why pay represents how much you as an individual are valued by your employer. So be sensitive to the importance money has to your employees in the management of their personal lives and their feelings of self-worth.
There is also a new sensitivity around pay disparities and wealth distribution, underlined by the impact of the pandemic which laid bare in many ways the inequities that exist in our societies and workplaces. We are all more attuned to the sense of pay fairness and equality. Payscale’s research supports the growing importance of pay fairness and found that when employees don’t feel they are paid fairly, they are more likely to leave.
A history of pay secrecy
Historically, a culture of pay secrecy was fostered in the workplace which has stifled open conversations about pay. Pay secrecy clauses used to be included in employment contracts or as part of organizational policies that prohibited you from disclosing what you earn to other workers. Under these conditions, disclosing what you earned could lead to disciplinary actions. The legality of these secrecy clauses has been questioned – it’s worth noting the National Labor Relations Act (NLRA) of 1935 permits most employees to discuss their salaries even if they sign a nondisclosure agreement. The act prohibits employers from imposing or even implying pay secrecy policies. We also had Obama’s Executive Order 13665 signed in April 2014 that prohibits federal contractors from retaliating against employees who inquire about, discuss, or disclose compensation information and more recently the 2015 California Equal Pay Act was the first piece of state legislation that prohibits employers from forbidding employees from discussing their wages or the wages of other employees.
What we know is that pay secrecy policies, whether formal or informal, often reflect an effort by an employer to conceal wage discrimination and employees are increasingly demanding more transparency when it comes to pay.
Pay determination can be complex or subjective
Another factor hindering effective pay communication is the simple fact that the way an employee’s pay is determined can be difficult to explain. Often, it results from a complex benchmarking, job leveling, and calibration exercise that even HR savvy mangers or employees may not fully understand. If your organization has not deployed a transparent approach to pay determination, then these conversations will be difficult. Conversations become easier when all stakeholders understand how pay is determined, how pay ranges are established, and how pay progression happens.
The converse of this is where organizations have not matured to a level of having robust pay structures; this can make explaining how pay is determined tricky. In this situation, pay decisions can often be subjective, without rigor, and therefore hard to justify.
Lack of manager training
Unfortunately, many organizations don’t train managers on pay communications, so even if they have a pay strategy, it doesn’t make as much of an impact on employee engagement as it could. Our Compensation Best Practices Report highlighted that 58 percent of organizations do not provide manager training on pay communications. There is a tendency for the compensation function to think our work is done if we have sent them a nicely articulated policy or briefing document, but practically we don’t often prepare managers for actual pay discussions, especially how to deal with challenging questions and push-back from employees.
Why it is important to get it right
There are many diverse reasons why communicating pay can be hard. But a compensation statement delivered by a manager with an informed conversation about how pay is decided and what the employee can do to earn more fosters trust and incentivizes employees to give their best effort.
Remember, pay is a critical part of your overall employee value proposition (EVP) and integral to your employer brand; in fact, you can even go as far to say you can have your own pay brand which is shaped by how existing and future employees feel about how you pay. Your pay brand is not only shaped by the way you pay (including how much and why), but also by how you talk about pay with employees. It is easy to see that managers can make or break your pay brand, but also that if employees understand it, they can act as ambassadors of the brand rather than detracting from it.
What immediate steps can you take to improve pay communications?
So, how can you put together a successful pay communication plan? In part two of this series, we discuss some immediate steps you can take to improve pay communications at your organization. Be sure to check out the next post in this series and, in the meantime, leave a comment below if you have any specific questions or insights to share about the challenges you are facing at your organization. We’d love to hear from you.