Connecting Compensation, Communication and Employee Engagement

Improving Employee Engagement Through Compensation Communication

by Christopher Fusco, CCP, GRP, SPHR - September 15, 2016
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As the workforce evolves, the world of HR continues to evolve along with it. New challenges, like the emergence of workforce diversity, devices that enable mobile work, and fair pay legislation are affecting companies of all sizes and industries. These challenges have made it more difficult than ever to engage and retain top performers.

So, what can today’s HR professional do to build and sustain qualified and motivated teams? More than ever, the answer lies in how they compensate their employees, which is essential in attracting, engaging and retaining the best talent.

How exactly can compensation lead to improvement in these areas? To find out, recently conducted its 9th Annual Compensation Outlook Survey. The most important finding is the interrelationship between compensation, communication and engagement. 62% of organizations that report paying their employees competitively also report a high level of engagement. While this may be positive, it begs the question – why doesn’t competitive compensation lead to even higher engagement scores?

The answer is likely due to insufficient communication. Although 89% of survey respondents report having a compensation philosophy in place, only 31% say this compensation philosophy is formally communicated to their employees. When employees understand how their compensation is determined (reflecting market rates, company budgets and each individual’s own performance) they are more likely to be satisfied and engaged.

The evidence of this is clear. The survey found that 85% of organizations stating that their employees understand the compensation philosophy also report a high level of engagement. Without well established and communicated pay practices, there can be unnecessary misunderstandings about how compensation decisions are made. These types of misunderstandings lead to disengaged and disgruntled employees.

Organizations do have the opportunity to turn this around, however, and better leverage compensation as a tool for improved engagement. The secret weapon? Managers, who are better trained to deliver more effective communication on the topics of performance and compensation. When it comes to performance evaluations, managers need to be encouraged to have open and honest communications with their direct reports – and they also need to be trained on how to do so. The quality of the relationship between managers and employees serves to increase employee satisfaction and engagement.

This is a developmental opportunity for many organizations, as only 68% of survey participants believe their current performance evaluation approach encourages communication between managers and employees effectively. And even less – 53% – say their approach is effective in supporting compensation and promotion decisions. At the same time, only 40% of organizations say their managers are formally trained on how to talk with their teams about compensation.’s 2016 Compensation Outlook Survey reveals some interesting findings about that state of compensation today and the challenges facing HR professionals. The findings reflect the insights of 287 HR professionals on workforce trends, technological advancements and regulatory changes affecting how they work and how employees get paid.  The findings highlight what they can do to improve. The biggest takeaway is finding a way to improve communication around compensation, which will ultimately lead to improved engagement. Want to learn more? Check out the entire survey report executive summary here.