Talking to employees about pay can be uncomfortable, even when the news is good. In a survey given by West Virginia University, 70% of managers admitted feeling uncomfortable when talking to employees about pay. Assigning a dollar value to an employee's work can be tricky, but it's a meaningful conversation to have for the sake of bolstering trust, increasing engagement, and improving retention.
What is an employee compensation conversation?
An employee compensation conversation, or a salary review, is an employer's evaluation process to determine if employees' salaries fairly and accurately reflect their performance at work.
How often should you review employee compensation?
It depends on your company policies. Some companies review employee compensation every six months, and others review it once a year. At the least, reviewing employee compensation once a year should be appropriate for most organizations.
How should employers determine compensation for a salary review?
There are several factors to take into consideration when determining an employee's pay:
- Analyze market pay for the position: Assess internal data by looking at employee salaries to understand your company's current state of wages. Then, get an update on current market pay data for the specific employee role from resources such as Glassdoor, the Indeed Salary Tool, or the Bureau of Labor Statistics (U.S.)
- Evaluate employee performance: Employees often connect their worth in the company to their salary. However, you don't want employees only to see their worth in terms of a dollar amount. Offer recognition for what your employees are doing well and have regular one-to-one talks. These factor into employee performance, as 86% of highly functioning organizations hold such discussions with employees and see productivity rise.
- Decide on factors you feel are most important: While performance is essential in determining employee compensation, there are other factors to consider. These can be a combination of employee and company factors, such as:
- Company structure
- Company budget and size
- Living costs and location
- Employee retention goals
- Historical employee performance
- Length of service
It's important to ask questions and discuss among leadership what items are most important to the company when it comes to employee compensation.
How do I talk to my employees about compensation?
- Show appreciation: First and foremost, you want to show employees your appreciation for the work they do. Point out and give examples of their specific contributions to your business.
- Provide background: Review the employee's role. Talk about their current pay and where they currently stand.
- Mention other value points: In addition to reviewing salary, you should also mention what else factors into their compensation, such as a 401(k), Paid Time Off (PTO), insurance, monthly reimbursements, or volunteer days.
- Listen to concerns: Be sure to listen to any concerns employees have about their compensation or position. Listen to what the real ask is behind their concerns and find what they deem the most valuable. For example, pay may not be the most critical concern—they may want the opportunity to work on more challenging projects.
- Communicate well: Be very clear and direct when explaining pay decisions. If the employee asks, offer suggestions and goals on how to improve their performance by the following salary review.
Handle compensation situations
You can't anticipate how every salary review will go. But you can be as prepared as possible. Here are some possible scenarios and how to handle them:
- Performance doesn't merit a compensation increase: Talk about their current salary, why they're not eligible for a salary increase, and give specific goals to work on, along with a time frame to complete those goals.
- Performance is high but doesn't merit a compensation increase: Share their current salary and why they will not receive an increase. Determine if something else can be offered (flexibility or opportunity to work on a specific project) and discuss how they can continue to advance within the organization.
- Compensation increases, but employee feels like it isn't enough: Share their current salary and how it compares to the current market for their role. If another co-worker's pay is brought up, direct the conversation back to the specific employee's compensation. Point out their key accomplishments and how those influence their pay. Finally, listen to what's behind the concerns. It's possible there are other things that could satisfy your employee’s needs.
- When an employee's performance and experience result in a compensation increase: Recognize the work that they have done and what they bring to the role. Discuss their compensation and how they can continue to advance within the company.
It's a tough job, but someone's got to do it
Talking to employees about pay is tough, but you don't just want to tell them that you're giving them a raise (or not) and send them on their way. By preparing for these talks and recognizing your employee's contributions, you'll enter these conversations with less dread and more ease.
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