Multiple influences are creating a move towards greater pay transparency in corporate America these days. Founders Circle Capital explained it this way:
“As the competition for talent heats up and more workers participate in the ‘Great Reshuffle,’ compensation has become a critical business challenge for companies at every growth stage. Beyond the pressure to offer above-market salaries and raises, CHROs are dealing with various internal and external factors, from evolving regulation around pay transparency to determining the best compensation approaches for distributed workforces.” (2022 Compensation Trends: Pay Transparency, Distributed Workforces & Total Rewards, How CHROs are rethinking comp strategy in 2022)
It seems whenever employee complaints reach the threshold of litigation on a large scale in the United States, regulators step in and exert their authority. This is beginning to happen in many business sectors in our country now. Will your industry or company be next?
Business leaders can get ahead of this issue by adopting an approach to compensation rooted in a sound rationale, not just data. Organizations that do seldom hear complaints about pay. Instead, their employees become their biggest advocates.
Conversely, companies mired in old-school approaches to compensation unmoored from any coherent philosophy are likely to see employee complaints continue. And those who have experienced such conversations know just how damaging they can be. Periods of economic and workplace turmoil such as those caused by the 2020 lockdown and the "Great Resignation" increase the frequency of these encounters and lengthen the list of concerns employees raise. When employers are not equipped with adequate answers, they end up losing people they cannot afford to lose.
The good news is this problem is both preventable and solvable. Let's talk about how.
Making Complaints Stop
The starting point in stopping employee complaints about compensation is to establish a clear rationale for your company's pay offering. That rationale should be rooted in a stewardship you want your employee to adopt. Here, stewardship means employees take ownership of the roles they have been hired to fulfill and assume accountability for the results those roles exists to produce. People who have a sense of stewardship approach their responsibilities strategically (in alignment with the company’s business model and plan) and adopt a shareholder’s mindset in their decision-making. They make sacrifices to ensure the company’s success because they are committed to the purposes the business serves and the value it provides. And they view their contributions as essential to those purposes. By extension, they recognize and acknowledge the need to reach a certain threshold of value creation before participating in the financial fruits of their performance.
So under what circumstances can compensation instill a sense of stewardship in your employees? When you do these five things:
1. Define Value Creation: To be fiscally and strategically prudent, all enterprises should define a threshold that must be reached before they will share value with employees (i.e. pay incentives). That threshold should be a level of profit, revenue, and/or ROA that ensures shareholders’ interests are protected and that a sufficient surplus is available to invest in company growth. Up to the value creation threshold, it is assumed all profits will go to address those two factors.
2. Articulate a Clear Pay Philosophy: In the most basic terms, a pay philosophy defines how employee earnings are determined and articulates what kind of performance shareholders believe should be rewarded. It should be a written statement. It should also act as kind of compensation constitution for all pay decisions your company makes. Businesses that have a clear pay philosophy, and communicate it to their employees regularly and effectively, find that about 90 percent of complaints about compensation simply go away.
3. Develop a Balanced Pay Strategy: In a balanced pay strategy, each compensation component in relation to the others is coordinated and clear. Each has a role to fulfill. This requires company leaders to ask and answer hard questions about every rewards play they are offering. Enterprise leaders must know the purpose of each pay component and what part of the compensation philosophy it is addressing.
4. Adopt a Total Rewards Approach: Sometimes employees complain about compensation when that isn’t really the issue that is concerning them. The frustration they are expressing about pay is a front for a broader problem they are having with their work experience. This happens when companies do not adopt a Total Rewards approach to their employee value proposition. Total Rewards means a company addresses four parts of the employee experience, not just compensation: a compelling future, a positive work environment, personal and professional development, and both financial and non-financial rewards.
5. Build a Sense of Partnership: Perhaps the most important component in helping your people assume stewardship over their roles is to treat them as growth partners. This is not a recommendation to make them shareholders or to formalize your relationship as a legal partnership. Treating employees as growth partners means you truly see their contributions as vital to the growth of the business…and you ensure they understand that in every way to communicate with and treat them.
In most cases, employers have more ability than they think to lessen and even eliminate the uncomfortable conversations they are having with their employees about compensation. A compelling employee value proposition, together with a clear pay philosophy and strategy, allows you to frame the nature of the relationship you want to have with your people (a growth partnership)--and the kind of work experience you plan to create for them.
To dive deeper into this subject, read VisionLink’s free report, Why Employees Complain about Compensation…and How to Make Them Stop. It further explains why employees have concerns about their pay and how to create a value proposition that turns them into advocates of your employer brand.
