BETA
This is a BETA experience. You may opt-out by clicking here
Edit Story

The Importance Of Empowering Managers And Employees On Compensation

Forbes EQ

Written by Enrique Esclusa, Co-Founder & Co-CEO, Assemble

Compensation is a critical element of employee engagement, retention, and overall satisfaction. Empowering managers and employees with the right knowledge, visibility, and tools to understand, and have meaningful conversations about, compensation is crucial.

When managers understand how compensation works, they are better equipped to make informed compensation and promotion decisions that benefit both your company and your employees. When employees understand how compensation works, they can have more productive conversations with their managers and make informed decisions about their careers.

By empowering managers on compensation, companies can ensure they are making fair and equitable compensation decisions that align with your company's values and goals. This leads to increased employee satisfaction and retention, improved productivity, and a stronger employer brand.

In this article, we will explore the importance of empowering managers and employees on compensation, and the benefits of doing so.

Compensation: A complex and emotional subject

Compensation is a complex topic. It is far more than just a number – compensation is a reflection of how a company values an employee, and represents the major source of income for most employees and the largest expense line for most businesses. For employees, compensation is always top of mind and has a drastic impact on their life.

For decades, it was taboo in the corporate world to talk openly about compensation. Societal, regulatory, and economic shifts are making compensation more top-of-mind than ever before. Unfortunately, most managers and employees are not well-versed in the intricacies of compensation and find it challenging to discuss it.

A lack of transparency around compensation can lead to misunderstandings and even resentment between employees and managers. When employees do not understand how their compensation is determined, they may feel undervalued or unfairly compensated. On the other hand, when managers do not understand how to manage compensation effectively, they may struggle to retain top talent, leading to higher turnover rates and decreased productivity.

The difficult role of managers and recruiters

Compensation conversations can often feel combative, and managers and recruiters are generally at the frontlines. While they don’t create the compensation program, they are the tip of the spear for implementing them. Managers and recruiters represent a company when compensation decisions are communicated to candidates and employees.

Sending them into these conversations unequipped is setting them up for failure. Companies need to ensure managers and recruiters are well prepared to face compensation conversations, or they risk facing casualties in the form of employee dissatisfaction, attrition, and lost productivity.

Fortunately, there is a path to success. As the old adage goes, “Proper preparation and planning prevents poor performance”. With the right knowledge, training, and resources, companies can equip managers and recruiters to make fair and equitable decisions, and communicate them effectively.

Three Ways to Empower Your Teams

Pay Transparency

The best way to empower managers and employees on compensation is through transparency. By providing employees with information about your company's compensation philosophy, job architecture, compensation bands, and the factors that influence compensation, employees can understand how their compensation is determined. When managers are transparent about how they make compensation decisions, employees are more likely to feel valued and respected.

Transparency also allows managers to more effectively explain compensation decisions to employees, which can lead to increased trust and better working relationships. Humans are wired to make sense of the world by crafting narratives to explain what we don’t understand. By being transparent about how decisions are made, your company can equip managers with the right narrative. In turn, they can relay that message to employees and candidates, so they don’t come up with their own.

Training

A second way to empower managers and employees on compensation is through training. Managers should be trained on how to manage compensation effectively, including how to make and communicate compensation decisions, and address compensation-related issues. When managers are well-trained, they better manage employee expectations, which can lead to improved employee satisfaction and engagement. Additionally, employees should be trained, too, to ensure that they understand how their compensation aligns with their skills and experience, and your company’s compensation program.

Companies continuously evolve with new people joining, others leaving, and roles changing. To be effective, training should be ongoing and should consistently reference your compensation program and policies. Your company should train managers and employees on your compensation philosophy, job architecture, and compensation bands to make and communicate decisions. Doing so will yield more consistent decisions that strengthen employees’ trust and lead to better outcomes.

Tools & data

Last but not least, empowering managers and employees on compensation also involves providing them with the right tools and resources. For example, software platforms like Assemble can help companies manage their compensation and pay transparency programs. This makes it easier for companies to surface and address pay disparities, for managers to communicate compensation decisions to employees, and for employees to understand their compensation. All of these can improve employee satisfaction and productivity, lower costs for a company, and prevent legal issues related to pay equity and pay transparency.

The Benefits of Empowering Managers and Employees

According to a 2022 SHRM report, 74% of HR professionals said inadequate compensation was the top reason employees leave their organization, yet only 14% said their current budget for compensation was adequate. What can organizations do when constrained with limited budgets? SHRM recommends shifting to a total rewards view of compensation (one that includes benefits and perks) and increasing transparency. Collectively, these can alter employees' perceptions about their pay, and deliver other benefits to organizations.

As it turns out, employees are more likely to feel valued and respected when they understand how their compensation is determined. This leads to increased employee satisfaction and engagement, which can improve productivity and employee retention rates.

In most organizations, HR teams need help from managers to communicate this to employees. When managers are well-trained on compensation, organizations are more successful in delivering this information to employees. Additionally, managers that are well-trained on compensation make better compensation decisions, which helps companies retain top talent and avoid turnover.

Finally, providing employees with the right tools and resources can help companies surface and address pay disparities, which can improve employee satisfaction and prevent legal issues related to pay equity.

Knowledge is Power

Effective decisions require more than mere communication – they require context and understanding by those affected. As the saying goes, “knowledge is power”.

To develop a successful compensation program, companies must do more than simply communicate decisions. To be effective, your company must empower its managers and employees on the intricacies of compensation and how compensation works at your company.

By providing transparency, training, and the right tools and resources, your company can ensure that managers and employees understand how compensation actually works and are better equipped to make informed decisions. As a result, you will see increased employee satisfaction and engagement, improved retention rates, and better overall productivity, all of which ultimately contribute to your company’s success.

Follow me on Twitter or LinkedInCheck out my website