Are the employees in your organization informed of their salary grade, or of the minimum, midpoint and maximum values of their salary range?  Do they know where their job stands in the company’s hierarchy (mine is bigger than “x,” but smaller than “y”)?   In effect, do they know how they and their job are being viewed by the company’s compensation program?

If they don’t, why not?

Is this privileged information, tightly held by Human Resources and only doled out in small drips, when asked?

Is it a secret?

Some companies don’t tell an employee their grade or salary range; or if they do, that’s all they give – the employee’s present status as a single, unrelated piece of information within a huge jigsaw puzzle.  In such a case the employee is unable to find out the grade or salary range of any job other than their own.  Without a frame of reference, such a restricted disclosure is not very helpful in planning that next career move.

Employees also won’t know if they’re being treated fairly.

Limitations on disclosure are strictly for the benefit of the company.  No one will say that the employees don’t want to know, or that such information isn’t important.  Instead,  reluctance to disclose is inherently a management decision meant to advance tactical considerations in support  of their own agenda.  In other words, it helps management freedom of action when employees are kept in the dark.

But what’s such a bad idea with informing employees about the broader compensation structure, to let them know where they stand within the organization?

• Unless there’s something to hide

• Something the employee should not discover

• Some policy or practice that cannot be defended

Given these potential cautions, while the concept of open disclosure often gets the heads nodding as a grand idea, negative practical implications may point in the opposite direction.  It’s the old “but not for us” ploy.

What could go wrong?

When the pay structure is posted on the wall for the first time, there for everyone to have a look-see, the phones will start to ring.   That signals the start of the “what about me?” questions.   Let’s look at a few common scenarios that managers would dearly love to avoid hearing about.

• If the midpoint is 100 and the employee is at the minimum, say 80 (-20%), even after five years of good performance reviews, how does the manager explain that?

• Why is that job (point at anyone) in a grade higher than mine?  No manager wants to defend job evaluation results, especially as it’s an inherently subjective process.

• Why is the job I want to bid on only a lateral move for me?

• If my job is so important (manager said so), then why is “job x” in the same grade?

Management doesn’t want to get these calls, because often times they’re woefully unprepared to answer the employee’s questions.   And they want to be liked, to have someone else be blamed.  So wouldn’t it be easier if the employee just didn’t know?  Wouldn’t it be easier to operate the business with employees left in the dark about their grade and salary range status, rather than face potentially awkward questions out in the light?

It does make sense, but for who?

How many of you reading this article have a piece of paper that you can lay your hands on, one with the title, “Compensation Strategy”?  Or, do you know if such a document exists in your organization?

The common response at this point is usually a blank look.  But why is that?  If paying employees is the single largest expense item for most organizations, why don’t they have a plan to manage it?

Because that’s what a strategy is, – a plan of action, a guideline or directional map that lays down a series of principles to be acted upon.  A plan helps you avoid the “let’s try this and see what happens” tactic.

Look around you; if Marketing has a plan, as well as Manufacturing and Finance, and of course you have the Corporate plan – then why not a plan that encompasses how to spend a lion’s share of the organization’s money?

Of course, when prodded a bit, most do seem to come up with an answer to my question – though they often sound reactionary, if not defensive.

• “We already have a Mission Statement.” But broad, aspirational phrases like “market leader,” “shareholder value,” “supplier of choice,” etc. are little more than a series of vague terms and buzz phrases meant to capture media attention.  There is no meat here.

• “We know what we want to do.” As if the plan for effectively and efficiently spending the organization’s money is somehow intuitive – that everybody knows it.  Sort of like a secret plan.

• “We use our annual objectives.” A claim that annual organization or department objectives are in fact the strategy – offers little more than short sighted thinking often vulnerable to swings in corporate focus.

So what we’re often left with are excuses, not effective responses.

The importance of strategy

Then what should be the focus of a compensation strategy?  And why is it helpful for an organization to lay down a tactical plan, a well-considered outline for present and future action?  Because . . . .

• It provides specific, motivating direction.  Having a plan establishes a pathway for action – for what you intend to do – and it helps point everyone in the same direction

• It helps guide and engage the workforce. Telling employees what you believe in, and how you intend to convert those beliefs into concrete action always pays dividends in the court of employee opinion.

• It identifies the focal points. It focuses attention on key program design elements (such as competitiveness, specific marketplace, pay-for-performance, cost sharing, etc.)

• It helps leverage the company investment in people. It makes a commitment to employees regarding how they will be treated, thus elevating their worth as a true asset important to organization success.

• It brands the company in a positive light and helps recruit talent. A compensation plan provides an opportunity for the organization to identify itself in a way that attracts potential employees.

So, if one accepts the importance of a plan for controlling costs and managing the effective and efficient use of payroll dollars, what are the barriers that stand in the way?

• Senior leadership disagreement. Lack of consensus over what to say (broad vs. focused, basic Compensation vs. Total Rewards, commitments vs. aspiration, etc.) stymies progress as the debate could take on a life of its own

• Vaguely worded messages.  Using generic phrases that are vague and meaningless, which don’t differentiate you from any other organization, or puffery and “mom and apple pie” phrases that sound great but mean little

• Ineffective communications.  Fears of raising employee expectations, high brow corporate-speak messages that employees ignore, and cultural insensitivities on a global playing field all serve as minefields for the unwary.  These are usually compounded when the message is prepared by professional writers little versed in the subject matter.

What if you do without?

Sounds like a lot of trouble, doesn’t it?  So why not do without?  Others have; so could you.

Which would then leave your single largest expense – employee pay – without a guiding principle, without a plan to ensure that such a large amount of money is spent in an effective and efficient manner.  Money would be wasted, like a steadily dripping faucet  – or a flood if you’re not careful.

Without a standard universal message the risk of multiple messages rapidly increases.  The information being communicated gets confused, blurred and often at odds between the messengers themselves.  Plenty of room then for inconsistent and inequitable treatment.

You would see your employee costs rise as a direct result of a no-plan environment.  Because the vacuum left by not having a plan will be filled by multiple pay practices that lack consistency, standards and internal equity.  Squeaky wheels and political insiders will be favored.

This is not for the faint of heart

Developing a compensation strategy is not an easy process, and even the strongest advocate would acknowledge the challenges to be faced.

First of all, building a consensus philosophy and message among senior management is a difficult, and often time consuming endeavor.

You should also expect a degree of passive resistance from naysayers and supporters of the status quo.  Or from anyone else who would benefit from your failure.

So in order to push the project across the finish line you will need the active support of senior management.  This doesn’t mean the lip service memo authored by professional writers, or even a brief appearance at a kick-off project meeting.  Organization leadership needs to be seen as effectively leading, pushing this initiative, walking the talk, so to speak.  The strategy needs to have a highly placed sponsor, one whose support is visible and easily heard.

And you will have to keep at it, too.  Monitoring adherence, updating as necessary and constantly reviewing that policy, procedures and practices remain in sync, mutually supportive and offering employees a consistent message is no small task.

It’s a lot of work, but worth it for the organization and the employees.

Does changing a light bulb make you an electrician?  Or does replacing your car’s oil make you an auto mechanic?

No?  When it comes to Human Resources, though – that can be a different story.

For many an HR generalist working in a smallish company the role of Compensation is essentially one of market pricing.  They want to know how much a job is worth out there in the marketplace.  Nothing fancy, nothing complicated, just answer the question – how much?  Given the easy access to survey information these days (the good, the bad and the ugly), many HR Managers tend to diminish the significance of compensation analysis with a shrug of the shoulders and a smug, “oh, we can do that.”

To their view, market pricing is a simple process of matching a job description (as available) to a generic, boiled down paragraph from a survey source, then noting the highlighted figure that corresponds to that job.  How difficult is that?  Piece of cake.

How bad can it get, they figure, asking an HR generalist or even a department manager to flip the pages of the survey to find the “going rate”?  Are they going to be that far off?

Yes, they can.  Yes, they will.

Now I admit to having a bit of a bias, but consider this:

• Survey complexity has been increasing, as customers demand ever greater degrees of “slice and dice” data analysis / market segmentation (your industry, your revenue, your geography, etc.)

• Surveys no longer provide just “the number,” but many figures to choose from.  Which is best for you?

• The HR Generalist already has a full time job, and not a lot of time to spend dabbling in the intricacies of market pricing.  They’re looking for the quick answer.  Does quick suit your needs?

• The periodic dabblers may also be affected by their own biases (they know the job holder) and a simplified grasp of the job under study (relying on title matches and / or abbreviated “descriptions”)

• What happens when a critical job isn’t perfectly matched in the survey?  Do you check off “no match” and move on?  What if you really need the data?  Is your ad hoc analyst able to triangulate other jobs into a reasonable assumption of the needed market rate?

• If you’re dealing with international jobs, there are a host of limitations on available data not commonly experienced in the US.  Market pricing overseas can become more of an art than a science.

The risk is in misreading relationships between jobs, where a wrong job match or an out-of-context figure could become the single domino that starts a chain of distortions.

If a job evaluation system is being used, one can readily see the relationships that exist between jobs.  So if a mistake is made with a Systems Analyst, likely that error will be compounded when coming up with the Senior Systems Analyst figure.  And if you’ve historically considered a Financial Analyst similar in value to the Systems Analyst, you can easily peg the Financial Analyst to the wrong market rate.  And so the story goes, for as far as you consider other jobs of equal value.

But perhaps the greatest challenge to the wannabe analyst is when they are challenged by two commonly asked questions.

• Are you sure of these figures? In other words, defend them as if they were your own creation.  What survey(s) did you use, who are the participants, did you properly match the job, let me see the data, etc.

• What do we do now? Having the data is usually the tip of the problem, and like an iceberg there’s always a lot more behind it.  How do we take the knowledge of competitive market pricing and develop tactical strategies to move the organization from a problem zone to safer ground?

So have a care when thinking of flipping pages through a survey, or clicking through an internet source.  The numbers can trip you up, even as you don’t know what to do with what you have.

Remember when you need an electrician, and when you don’t.

A disgruntled employee has knocked on your door.  “Frank Martin” has always been considered a solid, dependable worker, someone his supervisor has repeatedly rated “satisfactory” on your company’s performance rating scale.  But Frank is not happy with his pay increase.  He’s here to complain – to you – now.

Does this scenario sound familiar?  Have you ever been in the HR Manager’s position?  What you’re seeing is probably the result of poor reward program communications.  It’s likely the employee doesn’t understand how individual increases are determined, and the supervisor is either similarly in the dark, or wishes to pass the problem along with a shrug of the shoulders.  He doesn’t want Frank mad at him!

Companies find themselves in this quandary whenever their efforts to explain compensation isn’t given the same thoughtful care as reaching out to customers.  Oftentimes the task is assigned to speechwriters in Corporate Communications, who tend to sound like politicians or lawyers: speak broadly but offer little substance, suggest complications that confuse the issue, point fingers of blame and then tell the audience not to worry.

A common tactic is a single shot “dear employee” memo, a sanitized communication crafted to fit the “everyman” common denominator.  This technique is often further abused by telling employees only the “what,” as in what will happen, but placing little emphasis on the “why.”  Though isn’t it the “why” that employees most often question?  What they want to understand are the reasons behind the “what,” especially if the news is bad.

Who should have the answers?  The first line of upward contact is the direct supervisor, followed by the section or department manager.  These are the folks who employees deal with on a daily basis, and hopefully already have a level of trust established.  But as is often the case when communications have been poorly considered these contact points tend to show a blank face, pass the buck out of ignorance or avoidance and send their employees to HR.

Word around the office, says Frank, is that increases this year are 3.0%.  Since his supervisor told him he’s doing “a fine job,” he had expected more than what everyone else received, but his increase was only 2.5%.  That’s not fair.   When he complained his supervisor told him there was nothing to be done; there was a formula that everyone had to use.  Anyway, HR set the rules and he couldn’t do anything about it.  The supervisor even suggested that he had wanted to do more, but his hands were tied.

Supervision should know where the 3.0% came from, and how Frank’s increase relates to it.  It should be their responsibility to know, and the company’s responsibility to tell them.  If Frank was the victim of a formula that dictated his increase, his supervisor should be aware of the rule and understand the rationale behind it.

Having these answers will provide the “why” that employees want to hear.

So Frank is coming to see you, his HR Manager.  He’s worked up a steam of righteous indignation and hasn’t been quiet about how unfairly he’s been treated.  Chances are several other employees already know what Frank wants to talk about.  They’re watching outside, waiting to see what you say.

Are you prepared to answer Frank’s questions?  Are you ready to explain how the company’s pay-for-performance system works – and how the process relates to an individual increase?  Or will you pass the buck yourself, uselessly quoting a policy document or sending the employee on their way to the Compensation folks?

The above scene occurs time and again, regardless of industry, company size or geography.  Each time an opportunity is lost for a company to build a better relationship with its employees.  Because the impact of misguided communications is usually a disengaged employee, one skeptical of the company’s intent and likely to spread a negative message to coworkers.  Left to fester, negative attitudes can easily become a wider employee relations problem as morale worsens.  Once the company is viewed as an untrustworthy partner in the working relationship, it will take a major effort to make things right again.

Does the company care about how employees think and feel?  Does senior management share a concern about morale?  Don’t they need an engaged workforce?

The unfortunate truth is that some companies treat employees as a commodity, similar to an electrical appliance they can plug and unplug at will.  This management may not even be aware they are shooting themselves in the foot through their indifferent treatment.  They may not care.

However other companies do see the direct connection between an engaged workforce and increased productivity, reduced waste and down time, better customer service and customer relations – and an improved bottom line.

Employees for their part don’t want platitudes, generalities or excuses.  What they want are straight answers, honest communications and equitable treatment.  An employee’s ability to “tough it out” in hard times is directly proportionate to their understanding that treatment is equitable and that management is sharing the load.  Woe unto the Company who is reducing its workforce while handing out generous management bonuses.

To start building and maintaining a trustworthy relationship with your employees, look at the pay issue from their perspective.  They’re asking for straight answers to the questions that concern them, honest truths that treat them as valuable and appreciated members of the employee community.  Don’t attempt to confuse, complicate or generalize your message.  No bland “corporate-speak” allowed.  Such attempts will be mistrusted and ignored.  Employees will separate the facts from the fiction, and are able to handle the truth, as long as they believe you are being honest with them.

Whether it’s a flat revenue outlook, lower earnings expectations, competitive weaknesses, challenges over affordability, the need to reward better performers over average, or a hundred other business realities, you would be better served to be honest with your employees.  And spread that message as widely as possible.  Consider the traditional memo as only one tactic in your repertoire, as effective communications is repeated communications.  If the person on the other end of your message doesn’t get it, doesn’t trust it or even doesn’t listen, then you haven’t communicated at all.

If you lack answers for your employees, get them.  Learn how the pay plans work.  Become part of the solution by ensuring you can answer the questions your employees are going to ask – or have the wherewithal to get them answers.

And once you are aware of the pay programs affecting your employees, the “why” as well as the “what,” make it your responsibility to see that your front line supervisors and managers get the same message.  No more passing the buck.

Perhaps then you will have fewer awkward meetings with the “Franks Martins” in your workforce.

We’ve all seen the comic strip cartoon where an employee gets themselves pumped up to ask the boss for a raise.  It’s often good humor, and always at the expense of the bumbling employee.  They always seem to get it          wrong, and we the reader have a good chuckle as the payoff.

But how often do we look at that same scenario from the manager’s perspective?  Not much humor there, I’m afraid.  An awkward conversation with an employee rarely is.

In reality most companies of any size have a regularly scheduled performance review for their employees, where past performance would be assessed and a likely pay increase granted.  Usually the two are connected.

When an employee request for a pay raise comes between the review cycles, a common response is to tell the employee to wait until the scheduled review. That’s why a review is scheduled in the first place, to make sure an assessment of performance and pay does take place for all the employees.  Everyone gets treated the same.  If that wasn’t happening, everyone would be asking for the same special consideration and the company’s annual review cycle would be thrown out the window.

So much for the easy part.  However, the greater challenge is when such an off-cycle request comes in the form of a disgruntled employee who feels that they are being short-changed in some way, taken for granted or otherwise being (in their minds) grossly underpaid.

Handling the angry employee

In this case telling them to wait won’t do; you have to deal with the emotion of anger, as well as the growing cynicism that the company has been talking advantage of them, for pay purposes, for some time.

And you can be certain other employees will have their eyes and ears out for what is happening – and the respect you show for the employee.

While each conversation with an employee can be a unique experience for both parties, consider several pointers that might help you and the unhappy worker.

• Remind the employee that there is a process.  Always start with the reminder that the company does review performance and pay levels, that there is a process.  No one is being forgotten.

• Get them to talk about their qualifications.  You still need to let the employee have their say, but try to steer the conversation toward the employee’s own capabilities, background and experience.

• Do not address emotional issues like need.  That’s a slippery slope that pulls the conversation away from business and into the grey area of personalities, home life and pressures from outside the work environment.

• Keep the conversation about the employee, no one else.  While you’re willing to discuss how the employee facing you is being treated, you should not open the conversation as to how other employees are being treated.  There are too many variables at play here, but perhaps most important is that it isn’t any of the employee’s business – as long as they themselves are treated correctly.

• Show an open mind.  Never give the impression that you’re only going through the motions, offering only a “courtesy” meeting.  You need to genuinely listen, ask questions and show the employee that you’re prepared to listen and consider.

• Don’t get defensive.  Avoid being trapped into defending the company’s pay programs against the employee’s “research” into market pay.   Company pay programs are typically developed by professionals (again, in companies of any size), and it’s likely that the employees is using biased and simplistic figures.

• Don’t get into an argument.  No one wins here, but you’ll likely lose more because the court of employee opinion likely gave you one or two stikers before you came to bat.

• Don’t make promises, especially if you’re not authorized.  And don’t use throw away phrases like “I’ll look into it” or “let me talk to HR”, unless you mean it.  Unless you are actually going to take up the employee’s issues and run with it.  Because that will obligate you to report back to the employee, thus initiating another awkward conversation.

At the end of the day, your prime goal should be to come away from the discussion where the employee has had an opportunity to have their say, you’ve had an opportunity to listen without pre-judgment and the points raised by both parties can be further considered.  It doesn’t mean that you have to agree, but that effective communications has taken place.  Meanwhile the employee should come away with a better understanding of the company’s pay programs, where they stand and how they can improve themselves.

Note:  if perchance the employee has a point, and can make a case for improper treatment, don’t be a stickler for the “rules” but immediately raise the matter with higher ups and those in a position to further review and institute changes.