How to Communicate Compensation Effectively

Have you ever wondered how — or why — organizations prioritize effective communication about compensation? Communicating about compensation provides transparent, timely information through clear, consistent messaging and supportive manager involvement. Clarity in compensation practices can also promote a sense of fairness and equity among employees, reduce conflicts, and improve overall workplace harmony.

This article explores why communicating compensation matters and, just as importantly, how to do it.

Why communicating compensation matters

In one word? Employees. Your workers need compensation communication for many reasons:

For starters, there is the perception of compensation: Many employees feel underpaid and need to understand how compensation decisions are made, including information about their organization’s compensation philosophy. In a Gartner study, only 38% of the employees surveyed reported understanding how their pay is determined. The same study noted, “When organizations educate employees about how pay is determined, employee trust in the organization increases by 10% and pay equity perceptions increase by 11%.”

Communicating about compensation reduces turnover, builds trust, and enhances employee satisfaction and investment in their roles, making them feel valued and understood.

How to communicate effectively about compensation

While HR ensures policies are followed and manages communication strategies, the brunt of the compensation communication will fall to managers. However, many organizations fail to equip their managers with the necessary support to communicate compensation.

4 ways HR can set managers up for success

Compensation is a sensitive topic for many employees. There are a few ways HR can help ensure managers can communicate compensation-related information effectively:

1.) Communicate your compensation philosophy

A compensation philosophy formally outlines your company’s employee pay and benefits approach, aligning with its goals, values, and competitive strategy. When HR owns and regularly communicates it, such as by company-wide presentations, it enables the compensation philosophy to serve as a guiding principle for the whole organization.

Your company’s compensation philosophy can be reinforced via a written document, such as a compensation philosophy statement, that can:

• Live on the company intranet
• Be included in employee handbooks
• Be included in the employee’s total rewards statement

After owning the compensation philosophy, HR must give managers the tools and insight to communicate with their direct reports — especially at the end of each compensation review cycle. 

2.) Conduct compensation training with managers on how to engage 1:1 with direct reports

It's essential to provide a solid foundation to ensure managers have everything they need to communicate about compensation with their direct reports. It’s a good idea to hold training sessions that include a review of your compensation philosophy and an overview of the timeliness and process they should follow. After an employee receives a raise, the manager will often deliver the news verbally and then send an award letter as confirmation or written communication of the changes.

For many companies, it can be beneficial to cover frequently asked questions (FAQs) or even role-play common scenarios the managers might face, such as:

• Employee perceives pay is low (to market or for the company)
• Employee perceives the increase as unfavorable
• Employee brings their own data

3.) Provide managers with the necessary compensation documentation

When managers deliver the compensation message to their direct reports, they should be assisted with the following:

• Award letter. Content should include new salary, bonus information, and any other changes. 
• Total compensation. Provide a comprehensive breakdown of the total compensation package, including benefits and other perks (total compensation = salary + variable  + bonus + equity + benefits). You can also optionally include salary range data, which more companies are doing due to pay transparency laws, as well as the employee’s compensation history to highlight progress over the length of employment.‍
• Compensation philosophy statement. These conversations can be an opportunity to reinforce the company’s compensation philosophy, including how pay is linked to performance (if applicable). When employees see a direct link between their performance and compensation, it positively impacts motivation and morale.

4.) Be proactive about addressing employee concerns

It can be helpful for HR to conduct educational sessions and maintain an accessible compensation policy. This can take the form of:

• Establishing open communication channels
  • Hold Q&A sessions post-communication to address any immediate questions.
  • Provide ongoing support channels for employees to ask questions and express concerns.
• Documentation
  • Maintain written policies and FAQs that employees can refer to for common questions.
• Providing a feedback loop where employees can provide input on the compensation process and communication.

When to communicate compensation decisions

Many states require disclosing compensation in the job post or early in the interview process. Outside of this, there are three critical times to communicate compensation decisions: upon hire, during reviews, and for promotions.  

The Initial offer sets the stage; clearly communicating the initial compensation package sets expectations right from the start.

For most organizations, review cycles typically occur annually or semi-annually. Having a dedicated compensation review process can aid in the frequency with which you need to communicate compensation decisions. Typically, organizations schedule regular compensation reviews and communications that align with performance evaluations. Consistent communication during review cycles reinforces the link between performance and pay.

And then there are out-of-cycle promotions. When promotions or role changes occur outside the regular review cycle, prompt communication is needed to recognize exceptional performance and its immediate impact on compensation.

Final consideration: What method should be used to communicate compensation?

One last element to consider when communicating compensation is how you relay the information. Traditionally, mail merge-generated PDFs of award letters and total rewards statements have been used to communicate this information. However, this method presents challenges, such as version control, security, and accessibility.

Alternatively, an all-in-one compensation management platform can automate these documents (no more mail merges!) while ensuring security and confidentiality — all while equipping the relevant stakeholders with access to the information they need throughout the process.

Take a Comprehensive approach to compensation communication

Communication around compensation is critical: your employees need it, and your managers need help with it. Effective communication about compensation builds trust, reduces turnover, and boosts employee satisfaction. By ensuring transparency and clarity, employees feel valued and understood, fostering a more committed and motivated workforce.

Providing managers with the necessary training, documentation, and support enables them to communicate compensation confidently and effectively. This empowerment ensures consistency and clarity in messaging, proactively addressing employee concerns and fostering fairness and equity.

Additionally, communicating compensation at critical times — such as during hiring, reviews, and promotions — reinforces the link between performance and pay. Utilizing clear, consistent methods ensures employees understand and appreciate their total compensation package.

Need help with any aspect of your organization’s compensation process? Let’s chat!