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May 10, 2011
Do Employees Understand Their Compensation?

It’s likely that most companies make little or no effort to explain their compensation plan to their employees. They may even forbid talk about earnings, but that violates National Labor Relations Act provisions. Consultant Donald Nickels of PayScale, a provider of compensation data, recommends that HR explain to managers how the staff is paid.


Start with basic pay, which will usually be based on pay grades or pay ranges. Grades or ranges, in turn, will depend on such criteria for a particular job as the level of education, amount of experience, skills required, and the scope of responsibility; presumably a variety of jobs with different functions are grouped together into each grade or range.

Another aspect of your plan is likely to involve wage differentials: Some workers in a career field will have more experience than others and be paid more. And, some will possess hard-to-find skills, such as knowing a specific programming language that the company relies on, so they’re likely to be paid more than others with a similar level of responsibility.

Once managers thoroughly understand the plan, they are ready to explain it as it relates to each of their subordinates. They should tell each one where he or she falls in terms of base pay within the particular grade or range, so each knows whether to expect regular increases (given better than satisfactory performance, that is) or is about maxed out in that position. Though it’s sometimes hard for employees to be objective about what their jobs involve, this transparency works well, helping them know what they can expect in terms of pay increases. Some employees may start close to the max for their jobs, while others will have plenty of room for growth based on experience.

Here’s an example involving high school graduates: They are, arguably, equally qualified to go into retail or manual labor. But their chances for higher earnings over the years are better in manual labor, as they gain experience, than in retail. Each retail outlet will need only a handful of management employees, while skilled machinists are always in demand by manufacturers. Managers should help each employee map out a career path that’s realistic and suited to the individual’s skills and vision. HR should remain available to managers to help explain how pay is determined for any individual.

Tip: The above explains only your “extrinsic” rewards plan. HR should add to the mix an annual benefits summary that tells each employee what the company spends to provide him or her with vacation, healthcare plans, training, and other total rewards.

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