Including things like the value of insurance benefits makes sense. Turning over the couch cushions for every single potential cent does not.
Published Aug. 23, 2022 By Jen A. Miller
Pay transparency goes beyond just sharing salary ranges with potential job candidates. It also includes showing employees how they are being compensated for their work, experts told HR Dive.
To do that, employers are using total compensation — or total rewards — statements to draw the big picture when it comes to showing workers how they’re being paid, beyond just a base salary.
These statements can be beneficial in terms of employee engagement, talent attraction and retention, said Bob O’Hara, member of the firm Epstein Becker Green. They show that employers are dedicated to pay transparency, and also educate workers on how they’re truly being compensated. “If you’re really trying to be transparent with your people, you put down the big numbers to show that this is the overall value proposition for us having you in our workforce. I don’t think there’s anything wrong with that,” he said.
But the statements also need to be done right, include the right information and be delivered by managers trained to answer questions.
A total compensation statement should show four elements, according to Martine Lellis, chief talent and administrative officer at wealth management firm Mercer Advisors: base pay, incentives (which can include performance), equity and value of the benefits package.
Total compensation statements given on a regular basis also can show employees their progress with the company, and a potential trajectory; they can help “an employee understand their pathway and their history with the organization, and also what their potential opportunity is going forward,” she said.
Not only do these statements give employees that fuller picture, but by being transparent, employers also are engaging with their workers. According to a 2017 Payscale survey, how employees feel about a company’s pay philosophy and process had 5.4 times as much impact on satisfaction as the pay itself. The same survey also found that of respondents who felt they were being paid below market rate, almost 90% were paid at or above it.
Total compensation statements can help combat that feeling of being underpaid, said Lellis, especially with younger employees. That cohort tends to “fixate on base compensation and often base compensation alone because it’s on their regular paycheck and how they feed their families,” she said. That can often drive short-term decision making “when there’s really so much more that goes into a full compensation package.” Younger employees also may be more open to sharing pay information with co-workers, so providing these statements can give them a better idea as to why factors like performance or education might mean different compensation packages.
For total compensation statements to be effective, they first need to be accurate, the sources said. Including things like the value of insurance benefits, stock options, paid vacation days and cell phone service makes sense. Turning over the couch cushions for every single potential cent of benefit does not.
“You can’t go overboard and take free coffee and count that in total rewards,” said O’Hara; this might seem like a minor quibble, but adding too many perks that aren’t truly part of compensation can open companies up to accusations of fraud and lawsuits.
And not every employee is going to see every perk the same way. “You do have to be careful in touting some benefit that you peanut buttered globally into a package because someone can say ‘I don’t use that,’” said Lellis.
This doesn’t mean a company won’t continue to list a parking discount in a statement, but managers must be trained in how to deliver and discuss these statements, Lellis said — and right now, most aren’t. According to 2021 Salary.com survey results, 74% of HR pros surveyed said managers at their organization were not trained to talk to employees about how their compensation has been determined.
“We don’t want managers going into these conversations unarmed with how to communicate and walk through compensation statements, how to address common questions and then also when to escalate” to someone who has more experience, Lellis explained.
For example, someone who walks to work but sees discounted parking included on their total compensation statement may feel they’re being lied to, or cheated. But a manager can communicate that “there’s still value there in that the employer is saying we have this available to you even if you’re not selecting it,” she said, and point out that it benefits other employees, and might be of use if, in the future, that worker can’t or doesn’t want to walk to work anymore.
That way, she said, a manager could suggest that the walk-to-work employee see a parking discount as part of what the company is doing to provide for the overall community of employees.
