Most managers don’t love talking to their employees about comp. These pay conversations are delicate, thorny and can even end in tears. After all, pay isn’t just a number to your employees. Comp tells the story to your employees about how you much you value them.
Because there are so many ways for pay conversations to go sideways — especially when more money isn’t in on the table — we wanted to arm you with the talking points to master these difficult conversations this annual increase/communications season.
Pay Is One Part of a Greater Value Equation
To make sure that a compensation conversation yields a favorable outcome, it’s important to recognize that pay is about an exchange of value.
Employees bring a number of things to the exchange of value equation, including their experience in a certain industry/market/discipline, product and competitor knowledge, education and more. Employers bring a number of things to the table as well, including base pay, performance pay, PTO, benefits, travel, autonomy, flexibility and more.
Many times, we have conversations about pay and only discuss an employee’s salary. But if we fail to articulate all the value drivers our organization provides, an employee isn’t going to value all that the organization has to offer, and as a result, won’t feel like they’re getting a fair deal.
Top Questions Employees Have About Pay
Whether they ask you outright or not, you can bet that your employees have these questions on their mind:
- Am I getting a raise?
- Am I getting a promotion? If not this cycle, then what do I need to do to increase my value to the organization, get that promotion and earn more?
- How does my pay compare to my peers’?
- How is my pay determined?
If your answers to these questions are “yes, yes, higher than your peers, and we use market data to determine pay…,” the conversation will be easy-breezy. But if you don’t have room in the budget to give employees the raises they want — or if employees think they got less than they deserve — the conversation will be a whole other beast.
Below are four common ways in which comp conversations can get sticky. We’ve suggested talking points you can use when having these conversations.
1. When an employee isn’t getting an increase because their pay is high
Your company’s had a lean year. There’s no room for increases for anyone who is already close to (or over) the top of their range. You’ll have to deliver the not-so-good news that this employee isn’t getting a pay increase.
In this case, it’s important to make sure that the employee knows that their pay is already high, understands how their pay was determined and knows what they can do to increase their earning potential going forward.
Talking points to use:
- Show appreciation for this employee’s work and be specific about their individual contributions.
- Let them know how their pay is determined. For example, you may share that your organization conducted a market study three months ago and the research showed that this employee’s pay is high for their skillset. Therefore, they will not receive a pay increase this year.
- Remind them of the other value drivers you bring to the table. There might be something else you can offer to this employee. Perhaps they value more flexibility or autonomy or the opportunity to work on a particular project. It’s up to you to find out what each individual cares about.
- Show them the way forward. Explain how they can continue to advance within the organization and earn more — whether it’s by improving their performance, obtaining new skills, or when market data shows a gain in the position’s value. Be sure to mention the timeline for when salaries will be reviewed next.
- Give them some goals they can work on in the immediate future. Make it clear how they can increase their value to the organization and earn more as a result.
2. When an employee isn’t getting an increase because performance doesn’t merit a raise
In this case, you’ll want to make sure the employee understands why they’re not eligible for a raise and what they need to do to be considered for an increase at the next cycle. Talking points to use:
- Recognize the contributions they’ve made so far.
- Let them know that due to their performance, they’re not eligible for a raise at this time.
- Show them a way forward. Give them specific performance goals to work on and a time-frame for checking in on their progress.
3. When an employee gets an increase but feels it’s not enough
In the case that an employee is unhappy with raise they just received, the issue of fairness may be at play. A PayScale survey of 71,000 people found that most people don’t know if they’re paid fairly or not. In fact, 80 percent of people who are paid above market think they’re at or below market. And 64 percent of people who are paid at market believe they’re underpaid.
A PayScale survey found that 64 percent of people who are paid at market believe they’re underpaid.
Think through: why might this employee perceive their pay increase to be unfair? Have they already heard from their peers what others make? Is there something else (besides pay) they want?
Talking points to use:
- Reiterate their accomplishments.
- Re-focus the conversation on the key accomplishments they’ve met and how on their pay is linked directly to those accomplishments.
- Remind them of the market value for their role and skillset.
- Discuss why their pay is fair — and let them know you already advocated for that increase amount.
- Listen to what’s behind their concern. There may be room for negotiation; can you offer other things they deem valuable, such as more challenging work and career advancement opportunities?
4. When an employee brings you a salary report they found online and asks for more pay
Your employee has access to all kinds of wage information on the internet, including PayScale’s personal salary reports. If an employee brings you information from the cloud and asks for more money, here are a few things you can do.
- Explain that not all data is relevant. The salary report your employee finds may not be relevant to your business, your industry, or the size of your organization. Be prepared to tell them that.
- Refer to your own data. if you’ve been matching your compensation data against reliable market data sources (such as PayScale’s compensation data) or employer-sourced salary surveys (such as from Mercer), you’ll have all the information you need to address your employee concerns intelligently.
- Explain the difference between position pricing versus people pricing. Let your employee know that organizational needs dictate job requirements. Job requirements are used to determine the appropriate value and range for jobs; employee skills, abilities and experience dictate position in range.
Get Creative With Your Rewards
Although you may not have budget for comp increases, there are things you can do to recognize employee performance (or maintain employee loyalty). Here are a few ideas to consider:
- Know what interests your employees. For some, it may be the chance to contribute to a special project of interest; for others it might be greater autonomy or chance to work on a high visibility project. Get to know your employees as individuals so you can give them what they care about.
- Additional/alternative perks. One company I know provides catered luncheons for all employees every Friday. Additionally, their CEO invites startup founders and local VCs to their office for fireside chats so that employees can learn about the business world at large. Employees loved this!
- FWAs. Flexible work arrangements (FWAs) include part-time work, job sharing, compressed workweeks, and alternate hours. Would your business lend itself to any of those?
- Staggered increase or offer. A little now and a legitimate promise of some more later can go a long way.
- PTO. Would your employees appreciate more paid leave? You won’t know if you don’t ask.
Want to learn more about how to get pay communication right? Sign up for our upcoming webinar: Tough Comp Conversations: A Guide For Doing Them Right.
Conversations about pay are fraught with emotion, and the way they go can determine whether your employees stay or leave. When the cost to replace one employee who quits can be up to nine months of their salary, you’ll want to do what you can do to make sure that pay isn’t the reason why people quit. To recap, here are four things you should bring up when discussing pay with an employee:
- Sell the organization and put the full package on the table. Your compensation includes not only cash, but group benefits and perks such as unlimited PTO, remote work, 401K plans with company match, etc.
- Sell the benefits of the offer (whether initial wage or wage increase). Your employees are wondering how their pay compares to their peers’. So if their comp is high relative to others, don’t forget to mention it.
- Listen to the ask behind the ask — what really matters to your employees? Pay be not be the most important thing to all employees (it may be learning and development opportunities). Listen for what they’re saying in between the lines of what they’re saying.
- Let employees know how they can earn more. Employees want to know what they can do to increase their value to the organization and earn the money. Make sure you let employees know where they can go.
Tell Us What You Think
What’s your strategy for having tough pay conversations? We want to hear from you. Share your advice in the comments.
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