Communicating Compensation Plans to Employees

Posted by Peyton Liu on April 22, 2015

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What is a Compensation Plan?

How do you make it easy for a non-HR employee to understand what a compensation plan is? When asking yourself this question, it may be hard to define a compensation plan since there are so many factors involved in it. To make it simple here are a few ideas to get your employees ready:

Communicating Compensation Plans to Employees

1. Pay Philosophy

This philosophy means to tell your employee where their salary or bonus increase is based on. Is there a direct connection between the appraisal scores and merit salary/bonus increase? If so, you can explain the rules between them. If your company is “Pay for Position” based, tell them the position evaluation, position matrix, etc. You really don’t have to go into too much detail about everything, just make sure that the employee can understand “how”.

2. PayGrades

Explain the pay grades to your employees, make sure they understand that their pay may start low but there’s room for them to grow within the company. With more time, experience, and great performance in their position they can see an increase in their pay they will be more determined in their role from the start. Employees can be very motivated by finding out the pay grades policies Employees may have questions regarding pay grade when it comes to differences between their co-workers salaries. It is our responsibility to define the salary differentials to employees, there are certain areas like, their career level, experiences, certifications and education background etc, that help define what their compensation should be. An example of this is an employee who holds CCP certifications most likely will have higher base salary than the employee who doesn’t have CCP.

3. Total Rewards

“Total rewards” is a great concept when explaining the amount of money spent on the employees by the company besides the base salary. I would suggest that HR lists all the components we have in the total rewards package which may include: Base salary, fixed cash allowances (gas bill, phone bill), short term incentives (commissions/bonus), long term incentives (stock options, long term cash ect.) and benefits. Companies should have a habit to provide the “compensation statement” to their employees by the end of every year; this compensation statement will include all the items of Total Rewards, so the employees will have a better understanding of what the business spends on their behalf.

Obviously, besides these 3 points, there are far more areas in the compensation planning that we are doing year after year, but for communication purposes, these will make the best point when explaining it to your employees.

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