From National News, the newsletter accompanying the BLR book,
What to Do About Personnel Problems in [Your State]

In workplaces all over the country, it seems employees believe raises are completely arbitrary. When they imagine how pay decisions are made, they're likely to conclude it's something like pulling a rabbit out of a hat. That's why Ruth Wimberly, SPHR, called her presentation at the recent Society for Human Resource national convention "It's Not by Magic." She is HR director for Pacific Coast Companies, a building products manufacturer headquartered in Rancho Cordova, California, and operating in 10 states and Canada.

There are compelling reasons to explain practices. When employees don't get raises or feel their raises are too small, they're typically resentful and demotivated. Even someone who gets a raise that he or she is initially pleased with can get irritated after finding out that someone else got a bigger one, or others on the team make more money. So, to quell the bad feelings, should you ban all workplace conversations about pay grades and amounts? Wimberly thinks that's not the way to boost morale, nor is it the way to keep your top performers from jumping ship to a competitor. Instead, she recommends training your supervisors to understand and explain pay practices to their subordinates.

There are also barriers. Wimberly is quick to acknowledge that the task isn't easy. Not many companies communicate even their most basic compensation philosophy­and some are not aware that they have one, much less what it is. Wimberly gives examples of such philosophies, such as paying somewhat below market but offering richer benefits. Here, benefits can be seen as total rewards, including cutting-edge training or plentiful flex scheduling options rather than gold-plated healthcare coverage.

Another philosophy might be to pay a bit over market but be extremely selective in hiring, such as requiring recent graduates to rank in the top 10 percent of their classes. Thinking through your company's philosophy can be an enlightening exercise, and HR should be part of the top-management team that tackles it. Strategic philosophies should be closely aligned with business goals­and those goals will become key parts of training for supervisors.

Even after identifying the organization's pay philosophies, structure, and practices, many top-management teams will resist communicating them. They won't want employees to know what the pay grades and ranges are, lest they question the wisdom of the structure. More important, shining a strong light on structure and practices is very likely to reveal at least one, if not several, instances of true inequity­cases where the guidelines have been bent or ignored to allow someone to be paid substantially more than his or her pay grade would allow. 'What will we do about Stan in accounting and Margie in Dubuque?' managers will ask.

The answer? Address such situations and rectify them. Continuing to coddle the individuals who've benefited from the inequities is less important than a comprehensive communications program regarding the company's pay practices that will pay off quickly in greater overall satisfaction and better retention and productivity. (Meanwhile, Stan and Margie don't have to get pay cuts, just endure a suspension of raises until their pay rates are sufficiently in line with those in the same grade.)

Keep training simple­and short. Wimberly recommends that supervisors attend a single 90-minute training session each year (or less often if turnover is quite low). Don't use any jargon, she cautions, adding with a grin that you should definitely avoid words like 'paradigm.' What should be covered? Here's a sample outline that Wimberly uses in her company:

• Explain the company's compensation philosophy and how it is driven by the business mission and strategies, the organizational design and structure, and the critical skills and people needed.

• Cover the role of job descriptions in delineating duties and responsibilities, determining exempt and nonexempt status, and facilitating pay comparisons.

• Describe the company's pay ranges, including how they are determined, such as by market surveys, benchmarking, maintaining internal equity, and other factors.

• Help employees understand the competition by including salary and benefit comparisons. Present the organization's total compensation (or rewards) package, explain the minimum, mid-point, and maximum in pay ranges, and talk about the role of skills in placing employees in the range.

• Wind up by discussing how salary increase decisions are made: on the basis of an annual budget, prevailing economic conditions, and individual performance.

Wimberly also recommends that supervisors deal with one more prevailing misconception. Employees are likely to wonder why CEOs make so much more money than forklift drivers, considering how "cushy" the top jobs are. Using role-playing techniques, supervisors can illustrate how much responsibility­for employees, shareholders, and other stakeholders­top management has and why that's compensable.

What's the best thing about communicating pay practices? The process enhances HR's credibility.