Professional Documents
Culture Documents
COMPENSATION
Your guide to tackling tough
conversations about pay.
A PAYSCALE PUBLICATION
Introduction
Whether youre rolling out a brand new compensation plan,
preparing to make a pitch to your executives about why you need a
compensation plan, have recently updated your plan, or just want to
learn more about compensation, this is the eBook for you!
At PayScale, we believe the messaging about your compensation plan is as important as the
plan itself. Thats why this eBook is full of all sorts of useful tips and tools for getting your
compensation communications right.
Youll learn:
Compensation and communication basics
What to consider when developing a compensation communication plan
How to gain executive support for your compensation plan improvements
How to prepare your managers to talk compensation with their direct reports
Sample language your executives can use to spread the word about the plan
Commonsense answers to questions such as: How can I tell my high-performing, high-paid
worker that shes not eligible for a raise? Or, How can I motivate my low-paid, low-performing
worker? And, what are some ways to sweeten the compensation pot when theres no money
in the kitty?
Section One
Communication Basics
Youve got all kinds of fantastic ideas about improving your companys
compensation plan, dont you? (We thought so!) But before you
approach the powers that be about any sort of change (you know how
they hate change!), make sure youve got your communication and
compensation basics down pat.
Communication Dos and Donts
Youll be hard pressed to send the wrong message when you do your communications right. Wow your audience with
your communication AND business savvy by following these communication dos and donts.
DO know your audience: Whats important to them? How do they prefer to receive communications? (Via e-mail,
memos, group meetings, etc.)
DONT go crazy with the jargon: Break concepts down to simple language.
DO present a way forward: Be sure youre getting to yes.
DO focus on results: Dont get lost in the details.
DO develop a timeline: Work backwards from your desired end date.
DO be direct and empathetic: Talking about compensation can be downright uncomfortable! Money is a personal
topic for many(although not Millennials, apparently, but more on that later) and impacts an individuals livelihood
and sense of self-worth, even. (Gee, this stuff is heavy, huh?)
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Hot tip!
When developing appropriate messaging,
think PACT. Purpose, Audience, Context,
and Technique.
Stages of Conflict
10 Roles in
Managing Conflict
Power Struggle
Overt Conflict
Latent Tensions
Contain
Resolve
Prevent
The Peacekeeper
The Healer
The Bridge-builder
The Referee
The Equalizer
The Teacher
The Witness
The Arbiter
The Provider
The Mediator
Adapted from William Ury, thirdside.org
The take-away? Address conflict early and often for best results.
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Managers know...
Everyones pay
Everybody is talking about transparency these days! Transparent organizations are committed to the free flow of
information, from the top on down and all around.
However, it may not suit your company for everyone to know everything. Thats okay. Transparency occurs on a
spectrum, and theres a right level of transparency for every culture.
Levels of Transparency
Whatever level of transparency your company decides is best, be sure that your messaging across the organization is
consistent and managers are on board with the decision.
For example, if its been decided that managers can only share with employees the pay ranges up to the employees
level, managers shouldnt share higher level pay ranges as that will detract from a sense of fairness.
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Listen up!
Good listening skills are vital to good communication.
Before you can listen well, however, you first have to SELF-REFLECT.
Listen Actively
Self Reflect
Hot tip!
Good listening requires more than ears to hear! Experts
estimate that words make up only 7% of face-to-face
communicationsthe rest is through tone of voice,
demeanor, body language, and other behavioral cues.
Train your managers to recognize and respond to these
other means of communication.
Section Two
Compensation Basics
Compensation is a Keystone
Heres your MANTRA for the day (and all the
days to come): Compensation is a keystone.
Individualized rewards
and recognition
Variable costs
Fixed costs
Comp philosophy,
strategy and culture
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Compensation Terms
Need to brush up on your comp terms? (Or want a handy dandy cheat sheet to show your execs?) No problem. We aim
to please!
Talent (i.e., labor) market: It is described by the industry, size, and location where you compete for talent in both
recruitment and retention efforts.
Pay range width: The span of a pay range. Encompasses the minimum, middle, and maximum amounts.
Range penetration: Where an individuals rate falls relative to the range.
Compa-ratio: Measures the relationship between the salary of an employee and the midpoint of the pay range for
that employee.
Market ratio: Measures the relationship between the salary of an employee and the value of their position in the
market.
Red-circled employees: Red outliers (or red circled) are individuals whose pay exceeds the maximum
of the pay range.
Green-circled employees: Green outliers (or green circled) are individuals whose pay falls below the minimum of
the pay range.
Pay for performance: Rewards are based on whether an employee exceeds, meets, or fails to meet expectations.
Schedules: A group of grades and ranges used to differentiate fair pay to the local market while preserving internal
alignment.
Differential: Pay premiums on top of base pay based on differences in shifts, holiday hours, etc.
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Philosophy: n.
A broad set of ideas about how you intend to compensate your employees.
What is your compensation philosophy?
We pay the best because we want the best.
We pay to market and hire the best we can.
We pay what we can and offer great benefits and a great work environment.
We pay below market but are willing to train.
We pay some positions at or below market and others above market in accordance with our talent needs and our
strategic plan.
We (fill-in-the-blanks)
Your compensation philosophy sets the foundation for your compensation policy.
Strategy: n.
A careful plan or method for achieving a particular goal, for example, defining talent markets,
level of competitiveness, and what to reward.
What is your specific plan for effecting your philosophy?
Structure: n.
The way that something is built, arranged, or organized.
How will you structure your comp plan? Think about pay grades, pay scales, bonuses, commissions, and other incentives.
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Policy: n.
A definite course or method of action selected from among alternatives and in light of
given conditions to guide and determine present and future decisions.
Your comp policy is an outgrowth of your pay philosophy and should support your organizational objectives. Your
policies (and/or guidelines) help you carry out your philosophy, strategy, and structure as intended.
Thats So Yesterday!
Out-of-date pay practices include cost of living adjustments (COLA), broadbands, and singular strategies.
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Section Three
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Example #1
Objective: You want to move from COLAS to pay for performance.
Dont say: I think its time to move to a pay for performance compensation structure.
Your execs will think...
Here we go again! This must be the hot new thing she heard at SHRM! Pay for performance? Thatll mean more
paperwork, forms, tough conversations, and maybe even tears! Whats wrong with the way we do things now?
Instead, say something like...
Weve all been tasked with making sure were good stewards of our budgets. Since compensation is our biggest
expense, I want to ensure our organization is doing everything we can to get the best ROI from our compensation
costs. Id like to get permission to explore compensation structure improvements.
Example #2
Objective: You want to move from broadbrands to pay grades and ranges.
Dont say: Im going to assign all our positions to grades and set ranges for our jobs.
Your execs will think...
Youre going to decide the value of our jobs without our input? And, This all sounds very formal. I dont want my
hands tied if I need to pay someone more.
Instead, say something like...
Lets determine our key organizational needs and use that information to drive the value of positions. From there I can
provide tools to enable management to make good pay decisions.
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Example #3
Objective: You want to move from a singular strategy to a targeted strategy.
Dont say: Im going to benchmark all the positions against market and create
salary ranges.
Your execs will think...
How does he know what the jobs are? Does he think he knows best about our
competitors? What IS the market? This all sounds like more rules. Arrrgh!
Instead, say something like...
Ive noticed [insert business problem in need of a solution here]. I believe its
important that we decide where we think we want to be with compensation and
what is going to serve our business best. Im going to do some research about
where we get and/or lose our talent and present my findings to you so we can
decide what course of action to take.
Immediate Actions
Here are some things to do right now to improve your compensation
plan (as well as improve your chances of getting your executives to
support your plan ideas):
Determine the level of transparency acceptable to your organization.
Understand your companys business goals.
Know your audience.
Review your current pay practices.
Share key information with stakeholders.
Provide managers with expectations, education, the big picture, and tools.
Stay flexible! Review compensation for your hot jobs at least quarterly to keep
current without having to go into full-blown project mode.
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HOT TIP!
Section Four
Communicating Compensation
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Communication Roles
When it comes to communicating your compensation program, everyone plays a part: Executives, HR, managers, and
even employees (who need to provide feedback about the program). The plan clarifies who says what to whom, when
and how.
Executive role: Approve the program, communicate program company-wide, and perform manager role (if also a
manager with direct reports)
HRs role: Create the program and/or work with compensation experts to create the program, provide ongoing
communication with company executives, train managers, and perform manager role (if also a manager with direct
reports)
Manager and supervisor role: Understand the program, communicate with employees, get support from HR, and
support executive management and HR
Employees role: Understand the program, agree to the program, and communicate with manager/supervisor
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Executive Communication
Assist your executives to deliver high-level overview information about your compensation plan (managers will handle
the details when they meet with employees individually), by providing them with talking points, including a reminder of
the compensation plan philosophy and purpose.
A sample message from your executives might sound something like this:
Well say it again. How your company communicates your compensation plan is as important as the plan itself.
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Section Five
Equipping Managers
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Managers play an important role in supporting and administering the company compensation plan, but they cant do it
well without help from you. Equip your managers to have productive talks with employees about compensation by:
Setting expectations. Ask more and expect more from your managers.
Teaching negotiation skills.
Teaching listening skills.
Helping to prepare them for the compensation review meeting (including talking points).
Presenting compensation basics.
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HOT TIP!
Bring your execs into your managerial training,
and have them introduced. They will be more
supportive of the process and get some
training themselves!
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Talking Points
Talking points for the compensation meeting include any market/study results, your organizational compensation
philosophy, your compensation plan structure, the employees wage penetration, the employees new wage and the
rationale for it, career pathways, and an invitation for questions/comments.
Manager Toolkit
Your managers will appreciate a toolkit that includes all the forms and information theyll need to have a smart
conversation. Suggestions for packet material include the employees wage history, the teams wage history (useful
when discussing where this employees pay fits within the whole), the employees job description, and assigned goals.
(Note: PayScale does this for businesses who subscribe to our software with the Employee Report.)
Feedback
Before the compensation review meeting, give your managers this feedback tip: Its good to ask for permission. (Yes,
were serious!) Train managers to ask employees Is now a good time to share some of my observations with you? If
the employee says no, well... he probably wasnt going to be listening anyway! Better to schedule the talk for another
time.
Once permission has been granted, the manager will want to cover the employees behavior, the impact of the
behavior, and any changes needed.
Use the feedback sandwich. Start with positive information, delve into the negative, and then end with something
positive.
Think SPEAK. Specific, Professional, Empathetic, Authentic, and Kind. (We just made that
up, by the way!)
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No Surprises!
A compensation review meeting should never, EVER contain
information thats a surprise to the employee. Instead, the meeting
should, in many ways, be a recap of what the employee already
knows about her performance.
Earn more do more. The compensation conversation should always incorporate how the employee can do more and
earn more. Even your most stellar employee could learn something new or contribute in a new way.
Follow-up. The meeting follow-up is as important as the meeting itself. Be sure your managers know to sign anything
that needs signing, document the meeting outcomes, and (as time progresses) start or continue to provide ongoing
feedback.
Check Us Out!
At PayScale, we feel so strongly about communication that weve developed a training plan specifically to instruct
managers how best to introduce a new compensation plan.
Available as part of our Expert service offers, our Manager Training Program covers compensation basics (such
as compensation lingo and definitions) and emphasizes how managers must champion the pay philosophy and
understand the rationale for compensation decisions. We show managers how to use the PayScale Employee
Report as the basis of their discussions with employees. The training also covers how managers can align pay with
performance by assigning SMART (Specific, Measurable, Attainable, Relevant, and Timely) goals and providing direct
reports with regular performance feedback. Well even teach managers the proper way to calculate pay increases!
Finally, we talk managers through how to handle some pretty typical scenarios around communicating compensation,
including what to say when someone says, I found this report on the internet...
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Sample Scenarios
Of course, in addition to preparing for conversation that could happen, the manager needs to prepare for those
conversations that should happen.
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Scenario #3
Employee Pay: HIGH
Employee Pay: HIGH
Employee Performance: AVERAGE
Budget Available for Upward Adjustment? N/A
Manager Mission: Deliver the not-so-good news that this employee is
NOT getting a pay increase.
Sample Message: We appreciate your work on behalf of XYZ
company, and your skill set is current with what were seeing in the
market for similar positions. However, our research indicates that
your pay is high for this skill set. Therefore, you will not be receiving a pay increase this year. However, should your
performance improve significantly, or should your position gain in market value, you may be eligible for an increase
next year. Here are some goals. Lets discuss your movement toward those goals at the end of the next quarter. Can I
answer any questions?
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Scenario #4
Employee Pay: HIGH
Employee Performance: ABOVE AVERAGE
Budget Available for Upward Adjustment? Yes
Manager Mission: Deliver the news that this employee is NOT getting a pay increase, but WILL receive a lump sum
reward. (This could be touchy!)
Sample Message: Youre doing a great job, and we appreciate it! Our research indicates that your position value is
holding steady in the market. However, our research also indicates that your pay is above the maximum for the range,
so we cant offer you a pay increase this year. However, we can and are pleased to offer you a lump sum payment in
the amount of X in recognition for your contributions to the company. Thank you for doing such fine work! Also, Im
always available to talk about career pathways, should you decide that youd like to transition into another position
that offers greater income potential.
That wasnt too bad, eh?
Scenario #5
Employee Pay: AVERAGE
Employee Performance: BELOW AVERAGE
Budget Available for Upward Adjustment? N/A
Manager Mission: Deliver the not-so-good news that this employee is NOT getting a pay increase.
Sample Message: We appreciate your work on behalf of XYZ company, but as weve been discussing, your
performance is not where wed like it to be. Therefore, you are not eligible for a pay increase this year. However, if
your performance improves significantly, you may be eligible for an increase next year. As a reminder, here are your
performance goals. Lets begin tracking your progress monthly. Do you have any questions?
All done!
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HOT TIP!
Hey boss, I found this salary report on the internet, and...
Your employees have access to all kinds of wage information on the internet,
including PayScales personal salary reports. Some of its pretty good (hint), and
some of it is NOT so good.
What should you do when your employee brings you information from the
cloud and then asks for more money?
Here are a few tips:
Deal with conflicting information: The report your employee finds may not be relevant to your business, your
industry, or the size of your organization. Be prepared to tell him that.
Refer to your own data: Yes, we know its a little self-serving, but its also TRUE: If youve been matching your
compensation data against a reliable market data source such as PayScales compensation software, youll have
all the information you need to address your employee concerns intelligently.
Be mindful of position pricing versus people pricing: Organizational needs dictate job requirements and
therefore determine the appropriate value and range for the job; employee skills, abilities, and experience dictate
position in range.
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Generational Considerations
If you believe money issues are private, youre probably NOT a Millennial (1982-2002). Most likely youre a Baby
Boomer (1946-1964), or possibly an older Gen Xer (1965-1981).
Getting stuck on perceived generational differences has its downfalls, but thats not to say there isnt some truth to all
the brouhaha.
Overall, Boomers and Gen Xers expect to stay at your workplace longer than Millennials, and their career mindset
differs a bit, too. (For example, Gen Xers tend to value work/life balance, while Millennials value flexibility.)
Just something to think about as you consider and discuss total compensation with your employees!
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Immediate Actions
Here are some things your managers (and you) can do right now to begin improving employee conversations about
compensation.
Connect with employees about what motivates them. An engagement survey might reveal some interesting
answers.
Identify the compensation conversations managers need to have with employees.
Develop clear career paths.
Prepare any high-level messages about compensation.
Prepare toolkits for managers to use when communicating with employees.
Assess manager capacity for communicating compensation.
Develop a toolkit for your managers.
Train your managers.
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Summary
Well, that about wraps things up for now!
Need a few KEY TAKE-AWAYS?
Here goes:
Compensation is a keystone.
How you communicate the details of your compensation plan is as important as the plan itself.
Your compensation mix consists of: compensation philosophy, strategy, and culture; your fixed costs; your variable
costs; and individualized rewards and recognition. Your mix should be unique to your organization and drive your
organizational goals.
Most employees value transparency around compensation issues, but there is a right level of transparency for every
culture.
Managers and executives need your help in developing a compensation plan that supports your organizational
goals and in communicating that plan to employees.
Its good to review your compensation plan at least annually, and for certain hot jobs quarterly might be better.
PayScale is here to assist you with your compensation plan needs!
GET A DEMO
http://resources.payscale.com/hr-request-a-demo.html
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About PayScale
Creator of the largest database of individual compensation profiles in the world
containing 40 million salary profiles, PayScale, Inc. provides an immediate and
precise snapshot of current market salaries to employees and employers through
its online tools and software. PayScales products are powered by innovative search
and query algorithms that dynamically acquire, analyze and aggregate compensation
information for millions of individuals in real time. Publisher of the quarterly PayScale
Index, PayScales subscription software products for employers include PayScale
MarketRate, PayScale Insight, and PayScale Insight Expert. Among PayScales
3,000 corporate customers are organizations small and large across industries
including Zendesk, Miele, Keen, H&M and Clemson University.
www.payscale.com
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