Companies can benefit when they disclose pay processes to employees - HR Update: News that Works - Brief Article

HR Magazine, July, 2002 by Adrienne Fox

Employers can raise employees' satisfaction with their pay without actually raising their salaries, according to a recent study sponsored by Worldat Work, an organization in Scottsdale, Ariz., for compensation and benefits professionals. The study found a correlation between employees' understanding of their companies' pay structure and their overall satisfaction with their pay.

The key to better attitudes about pay, the survey found, is better communication. Writing in the survey report--The Knowledge of Pay Study: E-mails from the Front Line--participant Susan Zelinski-Davis, CCP, manager of employee performance and rewards at Nationwide Insurance, said companies "don't need to throw money at the problem to increase pay satisfaction, [they] need to communicate the process better."

Indeed, employers don't seem to be communicating the process well at all. Although 76 percent of the survey's respondents said they understand the basic concept of the pay grade, band or level they are in, only 48 percent understand the rationale behind their being placed in that grade, band or level of pay. Furthermore, only 41 percent said they know how base pay increases are determined, and only 36 percent know how their pay range is determined, according to the study.

Even when companies disclose pay structure information, the study found, there is still a gap in understanding the key considerations that go into getting a promotion or a larger merit increase.

"Employees want you to translate the pay structure to what their opportunities are for pay increases and promotions," says a co-author of the study, Peter V. LeBlanc. He served as president of the LeBlanc Group, which conducted the study, and is now senior vice president of Sibson Consulting Group/The Segal Co. in Gary, N.C. "Employees have no clue as to what they might earn if they were to be promoted. That's an even greater mystery to them than what their next base pay increase would be. They don't know what they can aspire to if they meet certain key considerations."

Another misconception among employees, the study found, is the belief that managers have a lot of discretion in distributing pay increases. "The ultimate irony is you hear disgruntled employees insinuate that there is favoritism involved [in merit increases]," LeBlanc says. "But managers' hands are handcuffed all too often because of the fairly narrow ranges and systems that are in place."

While many organizations use salary surveys and other market data to determine pay ranges, only 36 percent of respondents know how their organization's pay rates compare with market rates, the study found. "So many good efforts are made by compensation experts to link [pay rates] to the outside market, but it's hard to translate those efforts in a way that people believe its accuracy," LeBlanc explains. Employees question the selection of companies in salary surveys, the selection of regions and, most often, the content of the job profiles compared.

Far from being just an exercise in good will, explaining pay processes can generate the benefits that flow from improved employee loyalty, because employees who are more satisfied with pay are more loyal, the report states. The survey found that organizations that disclosed this information had employees who were more satisfied with their overall compensation level, more likely to stay with the company, more committed to the organization and more trusting of management.

LeBlanc cites two reasons why companies may still hold pay structure information close to the vest. First, he says, the pay structure "might make sense to a compensation expert or a management team, but they aren't convinced it would make sense to the rank-and-file. The question becomes, 'Is it explainable?"' Second, he says, managers believe that if they explain the structure to employees, they become bound to the process and to the key considerations.

Still, the benefits of disclosing this information seem to outweigh the risks, according to the study. "In the era of low pay increases and zero or low bonuses, organizations that aren't revealing as much as they should can gain a lot in sharing knowledge of pay," LeBlanc concludes.