Thought leadership

Improving Communications of Staff Pay

Improving Communications of Staff Pay

Two things are certain:  Everyone wants to make more money than they do, and managers would love to be able to pay their employees more than tight budgets will allow. So it should not surprise us that managers are often uncomfortable defending or even discussing pay with their employees. Neither should it surprise us that their discomfort comes across to employees as suspicious or as an unwillingness to be transparent.

So what do employees want to know about their own pay? They want to know whether it is fair and internally equitable; whether it is externally competitive with other employers for someone with the same skills and experience; and whether there is logic and a system for determining pay – that decisions are not arbitrary or reflexive.  Pay is personal, and an employee’s perception of her own pay is a direct reflection of how she feels the organization values her.

We believe most hospitals have a good story to tell. However, many are not telling their story well, and are not equipping managers with the tools they need to feel good about the way their direct reports are paid, or to have constructive discussions about how pay decisions are made.

This lack of attention to communicating pay is confounding. Staff salaries typically make up 50 to 60 percent of a hospital’s total operating budget, and they have an obvious impact on productivity and engagement. However, very little time is taken in executive team meetings to discuss the organization’s broader compensation strategies for employees below the executive level.  Few organizations even have a formal, written employee compensation philosophy. 

Clarity around staff pay represents the biggest opportunity hospitals have to reduce turnover and increase employee engagement, both of which can have a positive return on investment to the organization. An effective compensation program that is well understood and communicated by management can take what is typically a viewed as a detractor or a negative, and make pay a neutral factor, perhaps even a positive if done right.

To be effective in engaging employees, the compensation program must link pay to mission, goals, and performance. In addition, it must be all of these things:

  • Financially affordable
  • Market competitive
  • Internally equitable
  • Supportive of the culture
  • Consistently administered
  • Understood by staff and management

The foundation of an effective compensation program is the compensation philosophy. It serves the same purpose for staff as it does for executives: it aligns pay with the organization’s goals and objectives.  The compensation philosophy outlines the guiding principles by which pay supports the culture of your organization. In documenting a formal compensation philosophy, these are some things to consider:

  • What employers do you compete with for talent?
  • Are you competing with the same employers for all jobs, or are there some jobs with different markets for talent? (e.g., IT, legal, skilled trades)
  • How do you position pay in comparison to those competitors? (e.g., median, P60)
  • How do you collect market pay data, and what metrics do you use?
  • What is the timing of the review cycle?
  • How often do you update salary ranges?
  • How do you pass along market adjustments?
  • Do you pay for performance or merit? How will you recognize outstanding performance?
  • Do you provide salary and benefits only? Will you provide bonuses? Other special forms of pay? (e.g., signing bonuses)
  • How much flexibility will you exercise in administering pay?

The most common staff compensation philosophy is to pay at median (P50) of the market for most jobs and up to P75 for positions more difficult to recruit or retain, or those of strategic significance.

With a compensation philosophy formally documented, the next step is to assure that pay and benefits are aligned with the philosophy, and that the salary structure mirrors the competitive market. It is important to take the time to identify and assess any specialty pay programs currently in place (shift differentials, extra shift pay, call pay, float/PRN, etc.), as the market has changed over the last 10 years.  It may be necessary to eliminate some outdated legacy programs, or bring them more in line with current market standards in the context of the compensation philosophy.

Once complete, the pay philosophy and pay practices and policies should be documented in a compensation manual for use by HR and front line managers and supervisors.

The next step is to design and implement a multi-faceted communication plan. Providing training to front line management is always an important first step in the communication process, because employees often trust and confide in their immediate supervisors and will turn to them first with pay-related questions.  If managers are not prepared to field basic questions, or worse yet point the finger at HR, it can have a negative effect on employee relations and encourage the rumor mills.  It is critical that front line managers fully understand and embrace the organization’s stated compensation philosophy, and are equipped to spread the message.

One-on-one conversations between managers and employees are only one of several channels available to communicate with employees about pay. You may wish to consider these channels as well:

  • Orientation materials for new employees
  • Articles in the employee newsletter
  • Bulletin boards in employee common areas
  • Company intranet and social media (Facebook/LinkedIn job advertisements, etc.)
  • Employee forums or brown-bag luncheons
  • Management meetings
  • Department meetings
  • Customized letters to employees
  • Annual total rewards statement

Establishing a compensation philosophy is the foundation of an effective employee compensation program, and hospitals can greatly improve perceptions of staff pay by simply communicating proactively and consistently with employees.  Implementing the philosophy through the consistent administration and monitoring of pay programs over time is key to making pay a tool for attracting and retaining employees and helping them engage with your mission and goals.


Kelly Taylor


Kelly Taylor is a Principal Consultant with the Total Compensation and Rewards service line of Integrated Healthcare Strategies, a part of the Gallagher Human Resources & Compensation Consulting practice. For over 15 years, Mr. Taylor has consulted with a variety of tax-exempt healthcare organizations nationwide, including large multi-hospital systems, rural community & critical access hospitals, children’s hospitals, medical groups, and healthcare associations.

Mr. Taylor conducts compensation program audits and develops/implements market competitive compensation programs ...

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