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The Wizard Behind the Curtain: Demystifying Compensation Management

Editor’s Note: This article is written by Marc Mullis, Founder of Payformance Partners and was originally published on Employersadvantagellc.com 

Fall is such a great time of year. The weather is getting cool. The leaves are becoming vibrant yellows and reds. As a kid I always looked forward to seeing the Wizard of Oz in the fall. What a great story. A group of friends trying to help each other get to The Wizard so he can make them better people…provide a Heart for the Tin Man, Courage for The Lion, a Brain for The Scarecrow, and get Dorothy back to her family. [Spoiler Alert] …to find out at the end of the Yellow Brick road that the adventure they had been on, helping each other fight off the Wicked Witch and her Evil Flying Monkeys was the only thing they needed to prove to themselves that they each had what they needed. They just had to find it within themselves.

It does get me to thinking though. Do you feel like when it comes to performance management and compensation management that employees turn into Evil Flying Monkeys? Swarming us with questions about why they’ve been rated a “meets” or why they are only getting a 2.5% increase this year.

Maybe, just maybe, we’ve created this?

I think it’s possible that the wonderful employees that we have running the business each and every day morph into Evil Flying Monkeys during performance & compensation discussions because we don’t communicate enough.

Studies show that employees who understand the performance management and compensation management philosophy of the company are more satisfied and engaged.

  • When surveyed, the drivers of employee’s belief in pay fairness are as follows (1):
    • 36% – Believe that pay is related to performance
    • 28% – Understand how they can maximize their pay
    • 26% – Understand how pay is determined
    • 10% – (that’s right – only 10%) is related to actual level of pay
  • Companies with high communication effectiveness report that 66% of managers provide meaningful feedback on performance and total rewards, while low communication company’s managers provide effective feedback at a rate of 13% (2).

Managers cannot provide effective feedback if we as HR professionals don’t communicate the design, philosophy, and mission of the total rewards and performance plans that we have in place.

Before you grab a bucket of water to throw on me — I’m not talking about jumping right out of the gate with posters in every breakroom that have salary ranges and job titles printed on them. I simply mean to start where you are comfortable. Your communication plan can be as broad as your Compensation & Performance plan is mature.

When creating your communication plan you should consider the following questions:

  • What are the critical business changes driving these changes?
  • When are the compensation plan changes occurring?
  • Who are the audiences that need to be aware of these changes? (Chances are, there are several different audiences for pay plans.)
  • What does each audience (managers, employees, others) need to know and understand about the changes?
  • What do managers and employees need to do differently as a result of the program changes?

You should also provide specific information that is factual, has an underlying business rationale and clarifies your key messages. This includes the effective date of the change, what you expect employees and (especially) managers to do differently, and how managers and employees can get answers to questions.

A great first step in the delivery of the message is to train the HR business partners in the field. They are on the front lines. They speak to the employees daily. And, they are your partner! They need to be educated on the philosophy and details of the plan, so they can feel more comfortable doing their job. After that, go to line managers. They are the ones that should be providing the results of the year-end review (comp & performance). They need to be able to talk through it with confidence and be knowledgeable.

[ To dive into how to tackle tough conversations about pay with employees, get PayScale’s guide Communicating Compensation ]

I once had an HR Professional tell a very revealing story during a conference we were attending. She returned from a meeting to a voicemail that made her “laugh and almost cry at the same time”. Apparently, a manager was having a year-end conversation with one of their employees in a conference room. The manager was getting uncomfortable with the conversation because he didn’t know the answers to the employee’s questions.

So, the manager placed a call to the HR Business Partner. Unfortunately, when the HRBP was in a meeting and didn’t answer, the manager forgot to hang up the speaker phone. For five minutes (when the voicemail system timed out) the conversation consisted of the employee asking questions about her performance rating and that she felt as if she was paid low for her role.

The manager’s answer, “they won’t let me talk about salary ranges” …” I’m not sure how salaries are determined” …” I don’t know the answer”. Imagine how that employee felt. This is the main reason she comes to work. To make a salary and provide for her family. And we “can’t talk about it” with her. Here come the Evil Flying Monkeys!

As seen in this example, not communicating properly has potentially caused the employee to become disengaged, unappreciated, and confused. Further, the employee will most certainly be telling this story at the ‘water cooler’ causing many other employees to be confused.

You are The Wizard of, well, Human Resources. Don’t hide behind the curtain. You’ve created some great plans! Communicate them to the employees.

To learn more about how Payformance Partners can help your organization develop and enhance these programs and your compensation structure, please contact us to discuss your specific needs and circumstances.

  1. Source: Beyond engagement: The definitive guide to employee surveys and organizational performance, Kenexa
  1. Source: Towers Watson Change and Communication ROI Study
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