The Importance of Educating Your Workforce on How Compensation Works

Since 2018, state-level pay transparency laws enacted across the U.S. have opened a new frontier for employers – better educating their workforce about how the organization makes its compensation decisions.

Whether your organization has taken steps to educate employees about how their pay is determined or not, employees have access to more compensation data, knowledge and strategies than ever before. This trend will continue as more states in the U.S. and more countries in the E.U. continue to expand the way they talk about compensation and what information they make available to employees.

Why care about educating your employees about pay?

• Opportunity to create better informed, objective pay practices that can reduce or break down systemic barriers and support a more inclusive culture.
• More and more compliance requirements are here – states across the U.S. and countries internationally are trending toward increased pay transparency in all aspects of a compensation program.
• Pay transparency can build or increase organizational trust, both internally and externally.
  • About 80% of job seekers are not interested in applying to a job without a posted salary range, according to Indeed’s research.
• Can increase employee satisfaction and therefore engagement by empowering employees to understand the strategy behind their pay.
• Attract and retain employees – as the employer, showing your hand to candidates looking for a job can level a historically uneven playing field of pay negotiations.

What should you tell them about?

There are four major areas to educate your employees on regarding pay/compensation practices within your organization:

• Pay Strategy:
  • “We consider XYZ factors to establish our goal of N and this guides ABC decisions we make.”
• Pay Process:
  • “We perform these activities, these people are involved, and this is how they are involved.”
• Pay Communications:
  • “We are telling you when and what to expect from which team/person at this frequency and at this level of detail because it is part of our compensation strategy of N.”
• Pay Outcomes:
  • “We pay $X to $X for this role because Y.”
  • “Everyone makes Z.”
  • “We typically hire new employees between the minimum of the pay range and the midpoint of the pay range.”

Where do we go from here?

Educating your workforce about the mechanics behind their compensation empowers employees to make better informed decisions behind their behaviors at work, promotes trust between the organization and employees, helps maintain a clear approach and consistent application of pay decisions, and increases the ROI on the compensation program. Curating and developing specific information for managers about the “why” behind how the compensation program has been developed can empower managers to become advocates for your organization’s compensation philosophy and strategy. It can also help managers work with their direct reports on how the organization’s philosophy and strategy affects their take-home pay and the other benefits they receive as part of their employment (total rewards).

Linking behaviors to outcomes cascades down. Employees are more empowered and equipped to align their behaviors in support of the organization’s goals when they know what lies behind pay decisions. Deciding what to share and how to educate your organization on compensation can be overwhelming, but we have some recommendations. Check out our new guide for tips  and tricks on approaching pay education for your organization.

If you’re feeling lost on where to start or don’t have aligned leadership on how to approach introducing pay transparency into your organization, reach out for support – we’d love to help. You can reach us at compensation@cascadeemployers.com and we look forward to our partnership together!