A Managers Guide For Compensation Conversations

Compensation is always personal and important to employees. Being equipped to answer questions about Compensation and how our Compensation Practices are exercised can improve your team’s engagement.

Before you approach any conversation about compensation, there are several principles to keep in mind the following things:

Let Employees Know You Are Open to Discussing Pay

Listen to your employees before doing anything else. Your willingness to listen first will serve as a reflection of your attitude toward conversations about compensation. Employees will see that you’re open to discussion and that fair, and competitive pay is a priority. Conversely, if employees know you’re not open to compensation discussions they might look for transparency and value elsewhere.

Be Prepared to Talk About Compensation

Talking about compensation is always personal and important, which means it can be stressful and if the conversation can’t move beyond emotions, nobody wins. Compensation conversations can happen anytime (though they probably occur more during the end-of-year cycle.

When you know, in advance, that an employee would like to have a conversation about their compensation, it may be wise to reach out to your HR Business Partner before this meeting. Your HR Business Partner may be able to provide additional guidance on how to address specific questions, provide background information, and ensure that as a manager, we do not inadvertently violate any state or local laws.

The HR Team is a Manager’s Resource

If you don’t have the information you need or do not feel comfortable discussing an employee’s compensation, schedule an appointment to meet with your HR Business Partner, or Compensation Partner, before your conversation. Your HR and Compensation Team can help provide the relevant information, providing talking points and guidance on what is, and what is not legal to discuss with your employees.

Be Proactive about Pay Conversations

Don’t wait for your employees to bring up concerns about their pay before you have reviewed their compensation. As a manager, you may have access to your employee’s pay and pay ranges. You may have conversations about compensation throughout the year and understanding how employees view their pay, addressing questions, and setting expectations, will help to set a tone of transparency and answer employee questions before they evolve into larger issues. Discussing compensation will also help employees see that fair and competitive pay is a priority.

Be Firm About Pay

If you come equipped with a solid understanding and a calm attitude, the conversations should not be challenging. While we may try to answer questions as best we can, there will be employees who are dissatisfied with your answer. However, it is important not to make commitments about pay to employees at these meetings. Be firm and confident in our compensation strategy and remember that higher pay doesn’t necessarily mean better conditions or job satisfaction.

It is OK for Employees to Ask Questions about Pay

It is okay for employees to want to discuss and understand their compensation. When an employee claims they are unpaid fairly, it is natural for the manager to want to become defensive. However, when employees ask questions about their pay, it mustn’t be taken personally.

Most managers have a personal stake in being able to “take care of” their teams, which includes their employees’ compensation. As is usually the case, managers have put in significant personal effort into getting budget approvals for pay increases. Managers will frequently go to bat for employees to award them a higher raise or a promotion. Managers will delay hiring or forfeit a pay raise of their own to distribute it among their team.

Managers must remember that employees are rarely aware of the budgeting or promotional process and may not understand the work that goes in behind the scenes.

While all managers should be able to have these conversations with their employees, the HR and Compensation team should be available for managers to help with these questions so that they can clearly articulate the process to employees.

Managers Should be Available and Ready to Discuss Pay

Managers are generally the employee’s first point of contact when they have questions about their compensation, so managers should have some basic guidelines about how to have effective conversations about compensation.

Listen More Than you Speak

Talking about pay may be uncomfortable, but it is also unavoidable. During your conversations, listening before speaking is critical. During these conversations, it is important to empathize with where the employee is coming from, to understand their concerns, and to ensure they feel heard.

Do Not Interrupt the Speaker

When the listener interrupts the speaker’s statement or questions about pay to defend or explain, the employee is unlikely to be fully listening. Instead, they’re thinking about what they didn’t get to say. Successful conversations, even if they start to go south, can be had if the manager does not rush to judgment or defense if an employee is expressing concern or dissatisfaction with their salary or pay rate. Help your managers become stronger listeners.

Talk Early and Talk Often About Pay

When you sit down with an employee to talk about salary, there shouldn’t be any surprises. Having frequent conversations around compensation will result in easier conversations and fewer surprises. Consider starting the year by discussing compensation. Talk about what kind of bonus or raise the employee might expect if she meets her goals — or doesn’t – use this time to help set expectations and create realistic goals. Have regular check-ins throughout the year to talk about how they are performing so there are no surprises at the end of the year.

Prepare to Explain the Decision-Making Process to Employees

• When a compensation conversation “gets tough,” it’s often because an employee is not getting the information they need or the manager feels they can’t answer the employee’s questions. Train your managers to prepare (as best as possible) for that discussion by providing as much information as you can about the following factors:
• The market strategy, competitive set, or target market percentile for pay for their roles
• The pay ranges for those jobs and how they were determined based on the market strategy and/or internal equity
• Each employee’s position in the pay range and/or their pay compared to the market and how it was determined
• Potential for additional pay increases or promotions (how can this person earn more money?)

Be Prepared for Employee’s Reactions To Pay Conversations

Effective compensation conversations do not end with managers communicating decisions and walking away. Managers must also appropriately deal with employees’ reactions to those decisions. These reactions might be cognitive (e.g., denial, blame, acceptance) or affective (e.g., anger, disappointment, anxiety, hopelessness, shame) in nature and may differ greatly between employees.

In any case, managers should be prepared for some reaction or emotional response and engage in active listening during this stage, being sure not to dismiss employees’ feelings as overreactive. Managers should be able to partner with their HR Business Partners or their Compensation Partner before these conversations if needed.

GET CURIOUS

There is a lot to be gained by training managers to “get curious” when it comes to compensation conversations. Managers might be surprised or feel taken aback to see an employee expressing dissatisfaction about their earning potential — and this is a great opportunity to understand the employee’s perceptions of their pay as well as inform them about how pay decisions are made. For more information about how roles are benchmarked against market data, and how salaries are managed, please review the Benchmarking Process document and the Salary Review Process documents, which discuss, at length, the process used to ensure a competitive stance in the market, and how employee salaries should be determined.

Open-ended questions are always better than yes/no questions, though it is advised that managers try to avoid “why” questions; which can come across as accusatory. Leaning towards phrases like “tell me more about that” or “what about your pay feels unfair to you?”.

CompTool was developed by the author, Justin Hampton, a Compensation Practitioner with 15 years of experience at companies like Starbucks, Greyhound, and Big Fish Games. CompTool’s guiding principle is to create tools that are practical and useful for the compensation team at a reasonable price. Schedule time to learn more, using the calendar below: