Do you know how your pay is determined?

• Position: Your Life

Just about 40% of employees and managers in a North American survey said they know how they can increase their base pay or cash bonuses. The results suggest employers lose much of the value of the pay raises and bonuses they distribute by not communicating effectively. "Many employees and managers simply don't understand why they get paid what they do," points out Rob Heneman, professor of management and human resources, Ohio State University, Columbus. "Businesses can't get a good return on their compensation investment if people don't understand how their pay is determined."

The survey of more than 6,000 managers and employees in 26 organizations in the U.S. and Canada showed that employees and managers felt their employers did a good job explaining their performance objectives and the way their performance is measured. They were unclear, though, about how performance was related to pay.

Surprisingly, employees reported they knew more about stock options at their companies and how they are determined than how base pay is. However, the results showed that base pay knowledge plays a larger role in overall pay satisfaction than do other forms of compensation, such as bonuses. Employees who had...