Instilling Communication into Your Compensation Philosophy

Mike Haberman and I had a recent off-line discussion about a communique from SHRM that touted the importance of "a well-documented compensation communication philosophy".

While the phrase itself is a bit unwieldy, I have to say that I like the concept.  With all the debate about pay transparency following recently enacted and still pending pay legislation, I think the idea of addressing this head-on and proactively is a smart one.

To my knowledge, there is no universal standard for a compensation philosophy, there are some elements that many of us in the field have traditionally considered important to cover.  These include (but are not limited to):

• Overall compensation objectives: What must your compensation program do if it is to support the success of the organization?  (And please, please try to drill down beyond the standard "attract, retain and motivate" to identify the specific things critical to your business mission and strategy.)

• Market positioning: What is your labor market for talent and how do you intend to position your program in relation to that market? (Note that your labor market is different than your customer market, and that there may be different labor markets and positioning strategies for different employee groups.)

• Pay roles and mix: What is the respective role of each of the different components of your compensation program (e.g., base salary, annual incentive, recognition, etc.) and what will be their proportionate "mix" in your compensation program relative to the market? (For example, do you intend to pay lower salaries but provide an "above market" incentive opportunity?)

• Job valuation approach:  On what basis will you establish the relative value of - and pay opportunity for - the different jobs in the organization?  (Will you use an external market based approach or rely on an internal job content methodology like a point factor system?)

Add to this now a paragraph for Pay Communication.  A number of my clients already have done this with their compensation philosophy statements. 

Given where we find ourselves today, I think it wise to go on the offensive here and ensure that all our compensation philosophy statements - which should themselves be communicated to employees - also address what pay information will be shared (and what will not).  This provides employees with a clear, unambiguous signal on the organization's position and policy, and helps ensure that information sharing happens consistently across departments and managers.

Comments

[E James (Jim) Brennan]

In The Day, we had a Compensation Audit procedure covering the following categories: competitiveness, pay for performance, internal equity, government regulatory compliance, cost control, communications (the degree to which pay rewards should be used to communicate organizational objectives), turnover, cost effectiveness, concern for employees ("heart") and administrative ease.

Audiences from board directors through all management and other ranks tended to have no idea what their enterprise's intended policy/objective was supposed to be in each area. But all had absolutely no problem identifying the actual PRACTICE and relative importance of each category's perceived policy or objective.

A very rewarding activity, it was regularly a real eye-opener to all participants when they could safely answer an anonymous audit survey and learn the consensus answers. Such a pre-study is always a win-win process, since there are never any "right" or "wrong" answers and only "what is best for OUR unique organization".