Communicating Pay and Performance

Communicating Pay and Performance | Human Resource Executive Online

Monday, December 1, 2008
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In a chapter from the forthcoming book Closing the Engagement Gap: How Great Companies Unlock Employee Potential for Superior Results, authors Julie Gebauer and Don Lowman explore specific steps employers need to take to clearly communicate pay policies and related performance expectations.

Gebauer is the managing director of Towers Perrin's organizational research and workforce effectiveness practices, while Lowman is managing director of strategic growth. The book was written with the assistance of Joanne Gordon, a business journalist.

Below is an excerpt from the book, which is due out in January:

People need to know that there is an organization-wide pay program in place. They want to know supervisors tie pay increases to organizational pay policies and individual performance.

Communication is the best way to avoid disengagement caused by compensation. Unfortunately, not enough organizations actually communicate the components of their pay system to employees, which is why there tends to be a lot of mystery and intrigue?as well as misunderstanding?around pay.

In a 2006 employee survey, 41 percent of employees in McKesson Corp.'s Medical-Surgical division ranked their pay as "favorable," a percentage HR and senior management felt should be higher because total compensation was, indeed, competitive.

"We did more in-depth studies and found nothing out of kilter. It was all about their perception, and we just needed to change their perception using factual data," says McKesson's organizational effectiveness consultant Randi Claytor.

McKesson Medical-Surgical didn't give an across-the-board pay raise, but rather, began to formally educate workers about the well-researched pay strategy so they understood how supervisors determined salaries each year. HR developed a compensation training presentation that spelled out McKesson's pay-for-performance philosophy, and explained the industry and geographic research that went into determining salaries for various jobs and performance levels.

"We do not want compensation to be a black hole," says Claytor. "We want it to be transparent so every employee is knowledgeable and truly understands how they are being paid and how we reward individuals for the contributions they make."

About half of McKesson Medical-Surgical's national workforce was exposed to a frank compensation presentation and explanation via seminars. Says Claytor, "We told them we heard loud and clear that a lot felt underpaid, and while we were not in a position to just give everyone pay increases, we wanted them to understand the process we go through to ensure we provide competitive wages, and we hoped it would make a difference."

It did. On McKesson Medical-Surgical's mid-2007 employee survey, favorable pay perceptions jumped 10 points, to 51 percent, just months after education began ... .

Explaining pay policies also falls to individual supervisors. Even if senior management and HR construct a well-researched pay program that they take pains to explain, supervisors are the ultimate harbingers of corporate policy. When direct bosses discuss employee performance in detail, frequently, and honestly, the overall compensation and rewards process is more likely to be perceived as fair.

But when people get promoted or even receive salary increases and do not know why, it doesn't really feel like a victory. That's why delivering informed performance reviews is part and parcel of delivering fair pay. Indeed, pay and performance management depend to a great extent on the skills and abilities of every single supervisor to set goals, provide feedback, and determine pay levels.

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Every organization needs to train supervisors not only to explain and administer pay, but to deliver engaging performance reviews. Engaging reviews do three things well. First, they clearly define what is expected of employees to be top performers -- this includes identifying WHAT they must deliver as well as HOW they should deliver it.

Second, performance discussions should occur more than once a year, although not all meetings must be as thorough as an official year-end review. At Campbell, managers are asked to check in with employees quarterly.

Mary Lemonis, Campbell's director of global organization effectiveness, says mid-year and quarterly discussions maintain momentum and track progress so there are no surprises at the end of the year, when a formal review is linked to potential pay increases. Some Campbell managers even meet monthly with their direct reports.

Third, supervisors must be honest when discussing people's strengths and weaknesses related to the job's requirements and an employee's own career goals. Honest performance reviews trickle down from the top, and managers too often review their employees in a manner similar to how their boss reviewed them.

"I am very candid on the really good things I see and the things I would like to see done differently," says Honeywell CEO Dave Cote on how he reviews his executive team. "If I cannot do it with my team, how can I expect them to do it with their folks, and so on and so on."

Excerpted from Closing the Engagement Gap: How Companies Unlock Employee Potential for Superior Results by Julie Gebauer and Don Lowman with Joanne Gordon by arrangement with Portfolio, a member of Penguin Group (USA) Inc., Copyright (c) Towers Perrin, 2008

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