Has your finance team ever said “no” to your budget request — even though the thing you asked for would make a big impact on employee morale or your productivity?
Do you feel your heart rate elevating, hands starting to sweat whenever you are about to go into a meeting with your finance team?
Do you feel intimidated when you talk to your CFO because you don’t speak their language?
But what if I told you that there is a simple way to solve all of this? What if I told you that you don’t need to have sophisticated knowledge of financial models, debits or credits, or build a complex spreadsheet, to get Finance to approve your budget request?
If you approach Finance in the right way, your request will likely to get heard and even approved — whether it’s a bigger company comp adjustment budget, money for new HR software, or something else.
Recently, I had a conversation with PayScale’s Sr. Director of Finance, Derek Schlicker, to get his take on how HR professionals can start to speak the language of Finance, and ultimately get the budget they need to improve employee experience and business results.
Below, I will share his thoughts on how Finance professionals think and act, and show you what info you need to present to get your budget approved.
By the way, for even more insights, Derek will be doing a breakout session at Compference
— our annual conference on all things compensation — to show HR professionals how compensation planning happens from the financial perspective.
How Finance See Things Differently From HR
Photo by Nick Fewings on Unsplash
As HR professionals, your focus (or professional mandate) is to optimize the employee experience, so that your company can retain and hire the people the business needs in order to be successful.
You might say that your job is to ensure that employees work in a positive, healthy environment, are treated fairly and are growing in their roles. You spend the majority of your time at work with employees and managers, including on-boarding new hires, training employees, and listening to their concerns and ideas. You strive to find tools and solutions to help employees succeed.
To do all of this, you’d rather have a bigger budget vs. a smaller one — to reward people for good work, to provide benefits, perks, to host events like happy hours, annual picnics, etc. and in order to foster a sense of community among your employees.
On the other hand, your counterparts in Finance tend to see employees from a 30,000 foot view. They see people as an asset to a company, just like you do. But their mandate isn’t to optimize the employee experience, it’s to ensure that the business grows its revenue, manages costs and, ultimately, optimize and maximize profitability.
That’s not to say they don’t see employees as people; but rather their mandate is different and as such, they have differing priorities. Recognizing this difference is key to learning how to speak their language.
To fulfill their mandate, Finance professionals think in terms of trade-offs. They live in a world of scarce resources, and are tasked to ensure the business uses those scarce resources as effectively as possible. And oftentimes that means making hard choices where not everyone gets what they want.
They want to know what the options are, how likely each is to occur, and what the pros and cons are for each option in terms of easy to quantify costs (or hard costs) and hard to quantify costs (or soft costs).
To Get Finance on Your Side, Think “Give and Take”
For any type of thing you’d like to get budget for, the secret to getting finance on your side comes down to one principle: “give and take.” It’s the oldest principle for negotiation. In any good negotiation, you should know what the ideal outcome is for you, but you should also be willing to make concessions and have alternatives lined up.
For illustrative purposes, I’ll use an example. Let’s say that your CFO has given you high level guidance that your salary increase budget for next year is 4 percent.
You (or someone else on your team) have done the benchmarking work and pay equity analysis; you’ve determined that in order for you to fulfill your compensation strategy and get everyone within range (and fairly paid), you actually need another $300,000 dollars. This translates to a 5 percent increase budget instead of the proposed 4 percent.
You’d like to make the case to increase the budget so that you can 1) get every employee within range and fulfill your compensation strategy 2) Give certain high performers greater than typical merit increases.
Before you even talk to Finance, think through the following:
- In a worst-case scenario, are the “underpaid” employees worth retaining? For example, someone who has substandard performance/or is in a role that is easy to backfill may not be worth going to bat for when you have that conversation with Finance.
- What is the likelihood that this person is going to leave if they don’t get a raise?
- If the likelihood of this person quitting is high, what are the consequences for the team/department/business if the person does quit?
Make sure you explain the consequences in terms of hard costs and soft costs.
Hard costs:
- Loss of productivity during backfill phase (3 weeks up to 12 months)
- Getting the new employee ramped up and productive (4-16 weeks)
- Recruiting costs (how much does it cost to find a suitable candidate to backfill?)
- Consider that you’re probably going to have pay the backfill/new person at market rate regardless for them to accept the job
Soft costs:
- Lower employee morale and engagement
- Loss of historical knowledge and context in the employee’s contributions
- Opportunity costs for the manager and team, including time spent in interviews instead of doing work, time spent getting the new hire up to speed and fully productive, and time spent trying to figure out how to do the work of the former employee.
[Related content: A step-by-step guide on how to calculate employee turnover]
The key is to give your finance teammate two options. The one you want, and the one you don’t want. And you need to prove to them that you have their mandate in mind when you present your alternatives. If you can frame your desired solution as the better solution that fits both your mandate and theirs, you’re doing most of the hard work for them!
Want more tips on how to work with your finance team to influence your compensation strategy? Register for Compference18 — PayScale’s annual conference on all things compensation.
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