Effective communication is a critical part of any type of compensation administration, but it is especially important in times of change and when moving from one type of compensation program to another (such as movement to a pay-for-performance system).

Elements for effective employee communications regarding compensation

Employees are aware that the economy is slowly recovering from the 2008 financial crisis. Current surveys also indicate that fewer organizations have hiring freezes in place, and for employees who did keep their positions through the recession, salary growth has begun to tick up again. This situation makes managing employee expectations around compensation more important than ever.

There are two key components of an effective pay communication strategy that account for a large percentage of the impact of pay communication on perceptions of pay fairness: message source, and message content. In order to increase the perception of pay fairness, the source of the message should be either a representative of the compensation function (such as HR), or management.

Compensation functions most effectively drive perceptions of pay fairness if they communicate with employees at least once a quarter and focus on providing messages during periods of change. Face-to-face, manager-led pay conversations held at least twice per year increase employee pay process fairness perceptions. These conversations should touch on four key topics:

• Performance criteria (especially in a pay-for-performance system)
• Employee compensation growth potential (explain the pay grade and pay range structure, if applicable)
• Salary increases (explain the criteria and timing)
• Bonus criteria

Integrating pay, performance and career development systems and providing the flexibility to differentiate high performers with pay both increase employee perceptions of pay fairness.

Effective employee communications regarding compensation plan changes

"Even if your base pay structure is rock-solid and supported by market data, successful integration of the system with other organizational systems (such as performance management, your promotional policies) will depend on successful communication." Jennifer Daniels explained in a recent BLR webinar. If you do need to make changes to your base pay system, develop a plan on how to do so effectively, openly and successfully that fits with your organizational culture.

Implementing or updating base pay systems without a clear plan can lead to some common pitfalls, ranging from employee misunderstanding of the system to negative financial impact. To help avoid such pitfalls, be sure to develop a detailed transition and communications plan for implementing the recommended program changes.

This plan should include messaging to the Board and to senior management, followed by messaging to the staff regarding the defined compensation philosophy. The plan should also include a strategy for communicating with impacted staff individually.

With all base pay program communications, there are some common communication goals:

• To ensure that employees fully understand all of the components of the new compensation system
• To improve employees’ perceptions of how their pay is determined (a common example is to move perceptions from "expected" increases to compensation that is based on specific performance criteria)
• To motivate employees to perform their jobs to the best of their abilities under the new system

For more information on effectively communicating about base pay and pay program changes, order the webinar recording of "Pay Grade Update: Retain Top Talent and Stay Market Competitive in 2013." To register for a future webinar, visit http://catalog.blr.com/audio.

Jennifer Daniels is a Senior Consultant with Keating Advisors. She has experience in all aspects of total rewards strategy design and human resources projects implementation consulting. She has a proven track record in project management, conducting detailed compensation analysis, and developing pay-for-performance strategy.