How to Communicate Compensation

Introduction

In this article, we’ll explain some of the main ways in which you should prepare to communicate during the compensation management process, and best practices to ensure that your team is as clear and productive as possible. 

The Importance of Effective Compensation Communication

Compensation is generally a sensitive topic, and processes surrounding it such as merit or promotion cycles are often time-consuming. As a result, effective communication is critical to meet the goals of compensation management and to be as efficient as possible with your time. 

How Should You Communicate Compensation?

Most compensation-related communication centers around the points when employees pay changes – specifically during promotion or merit cycles that typically happen once or twice per year. As a result, most of these best practices center around these key inflection points in the compensation management process. 

Develop an Effective Compensation Management Program

We’ve written about how to set up a compensation management program that will help you accomplish your goals. 

Start off by developing a thoughtful system that works for your company’s size and scale, with regular compensation cycles, effective frameworks, and the data that you need to make excellent compensation decisions as efficiently as possible. 

A clear compensation philosophy is a key step to take in setting up a compensation management system. You'll want to reference that philosophy later on when communicating directly with employees.

Decide What Compensation Information Can Be Shared (And What Can’t)

Compensation can be a sensitive topic. It’s generally considered rude to ask what others make, and many people can understandably be sensitive about how much they’re paid. Additionally, it’s very easy for people to get upset after finding out others’ compensation – particularly if they find out that they’re underpaid relative to others. 

The fact that compensation is so private means that most companies have historically treated salaries and total compensation as private, confidential information. 

Regardless of what your strategy is, you should determine exactly how much information you plan to communicate to your team as early as possible. Data points that you might consider making public or obfuscating depending upon how your team operates include:

• Guidelines or ranges for standard merit, cost-of-living, or promotion increases to cash compensation
• Ranges of equity grants, and/or your algorithm for determining equity amounts
• Compensation bands (some companies may be transparent about compensation bands for all roles, while others may only be transparent within departments)

With new pay transparency laws, compensation information is increasingly coming out into the open. For example, if your company operates in a jurisdiction where you need to reveal pay ranges for job openings, your compensation bands may already be publicly available. Keep that in mind when deciding what compensation information should be public. 

Company-wide Communication

One of the most important steps to an efficient compensation cycle is upfront communication. Employees should understand how and when they’ll need to make decisions about compensation, and when their salary or equity will change. 

Employees value certainty in communication, and for many it’s important to know both when pay increases will hit their bank accounts, and also when they’ll know about changes. 

More significantly, managers need to know when they’ll need to take steps for upcoming compensation cycles. 

Compensation cycles can be time consuming, particularly if you haven’t invested in dedicated compensation management software. To ensure that managers have the type to invest in making high-quality decisions, they should be looped in on the decision-making process as early as possible. 

Educate Managers and Decision-Makers

Compensation is a complex topic and the managers and decision-makers who will engage in compensation changes need to be armed with the right information to make good decisions. 

Some of the most important information to provide to managers includes:

• Where their team members’ current compensation stands today. In many organizations this information may not be readily available, but it’s obviously required to make decisions about compensation changes. At technology companies, one of the most important dimensions of current compensation to communicate is employees’ future vesting schedules. 

• Information on compensation bands for both cash compensation and equity. 

• Information on recent performance reviews or promotion decisions. 

• What actions they’ll need to take during a compensation cycle – is compensation dictated from leadership? Will they need to suggest compensation changes, or approve them for managers on their team? 

• When they’ll be asked to make decisions about pay increases or additional equity grants – compensation decisions can be complicated and require back-and-forth, so managers often need to budget time in advance. 

By communicating key information to managers in advance of compensation cycles, companies can ensure that cycles run as smoothly as possible and fulfill the important compensation management goal of saving time. 

Communicate With Employees Promptly and Accurately

Once compensation decisions have been made, managers should communicate updates to their teams promptly. This can be done live or via automated alerts from a compensation management product. 

Managers should also be trained in how to communicate compensation to employees. In particular, they should be enabled on how to handle situations in which employees are disappointed in the compensation that they receive. 

Given the potential for disappointment, and the need to provide context to employees, it’s generally smoother to communicate compensation decisions live when possible. 

The most important detail? Don’t communicate the wrong information! There are many factors that can result in incorrect compensation information being inadvertently shared:

• Spreadsheet formula or organization errors

• Copy / paste mistakes in email chains

• Imprecise communication – for example, not fully notifying employees about equity vesting schedules

• Errors of omission (for example, notifying employees of a small cash increase when they’re also receiving a more significant equity increase)

• Information being sent to the wrong recipient

The impacts of communicating the wrong compensation information to employees can be severe. Employees who mistakenly hear a number that is too low will be relieved when the mistake is corrected, but may lose faith in the process. Employees who mistakenly hear a number that is too high can be (rightfully) angry when the mistake is corrected. 

The best way to prevent incorrect information from being communicated to employees is to use a robust compensation management system that specializes in organizing data and managing permissions. By investing in this type of product, you can ensure that compensation data will be communicated accurately in all circumstances. 

Final Thoughts

Compensation is a vital part of motivating teams, and communication of pay changes is one of the most important moments when it can help to serve its purpose. By communicating this sensitive but critical information accurately and effectively, you can ensure that you’re accomplishing your compensation management goals. 

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