This is Awkward – Discussing Pay with Employees
This is the time of the year when many companies are communicating pay increases and incentive awards to employees. While communicating pay changes is usually good news, for many managers there is stress associated with this activity, and rightfully so. Why is communicating about pay so hard?
Pay is ultimately money and people generally don’t like talking about money, it is an uncomfortable subject.
Do you broadcast to your friends and family how much you earn? Probably not, so if you are uncomfortable talking with your nearest and dearest, you can understand why we feel uncomfortable talking about it in the workplace. So with all of the stress surrounding talking about pay, why should we care?
Why is pay communication so important?
Communicating clearly about pay increases and your pay practices has huge payback potential in better employee engagement; yet most companies fall short in this key strategic area. It’s no longer enough to build a smart compensation program aligned to your company’s business needs and to regularly benchmark salaries against the market. Communicating about compensation done well is about WINNING in the talent game in attracting, retaining and engaging the best and the brightest to your company. To win, companies must approach their compensation program and communicating pay as a key business strategy. To retain top talent and attract new top talent you must show them that you care about them, their lives, that you pay fairly and value the talent they bring to your company. Doing this well will set you apart from other companies. Conversely,not doing these things well will place your company at a disadvantage.
Improving employee perception of pay
It seems we have our work “cut out for us” in this area – according to Harvard Business Review (2015 article) written with Payscale, a study of 71,000 people found that employees perceptions about their pay is usually wrong, even if employers are paying at or above the market. In fact, a surprising two-thirds of people who are being paid at market rate believe they are actually underpaid, representing a huge discrepancy (see study results below).
But there is hope – a World at Work study conducted in 2011 and replicated in 2018 (“Rewards Fairness and Equity”) found that several key rewards practices enhance employee’s perception of their pay:
- rewards communication,
- external salary benchmarking,
- rewards strategy, and
- culture of openness and transparency.
From these studies the importance of getting pay right is clear, but that’s simply “table steaks”. You can have a competitive pay program, great rewards strategy, regular and valid benchmarking to set pay, but if you are not communicating well with employees well about pay then pay will not be received well.
How can we help managers prepare for pay conversations?
Direct managers are in the best position to deliver pay messages as they have the most personal relationship with employees, but they need help to have productive conversations with employees about pay. To equip them to deliver pay messages, we need to provide the what and the why of pay decisions. We recommend using the following steps to have productive conversations about pay decisions with employees.
Get buy-in from key players
It’s important to get buy-in early to make sure each party is supportive and knows the role they will play. This typically includes:
- Executive leaders to reinforce key message points as part of their communications with their management team or in larger employee sessions,
- HR to facilitate timely execution of the communications, provides communication materials to managers and manage the timeline, and
- Direct managers to personally engage with each employee on his/her team.
Provide the overview perspective to managers
Employee understanding of compensation decisions can be greatly enhanced by laying the foundation and providing context to frame up pay discussions. This may include touching on:
Your company’s Reward Strategy such as do you have a pay for performance strategy and do you value external pay competitiveness, internal equity or both,
Information about how the company performed in the past year; and
Individual performance to provide a quick recap of performance review discussions and help set the context for the rest of the pay discussion.
Arm the messengers
You can help equip managers with the tools they need by:
- Being clear about the logistics of what each manager needs to complete and by when,
- Providing talking points or discussion guide and FAQs; managers are most effective using their own words but providing a conversation outline ensures key messages are covered,
- Role-playing to allow managers to practice delivering and fine tuning key talking points so they feel comfortable doing it with their teams, and
- Reminding managers of a few key DO’s, such as good listening skills are vital to good communication; practice ACTIVE LISTENING while COMMUNICATING ASSERTIVELY.
Before meeting with each employee, managers should anticipate the questions that will be asked. If an employee asks a question that can’t be answered on the spot, acknowledge that and promise to look into it and get back to the employee. Managers should also make sure to take ownership/support pay decisions. Passing the buck never makes the employee feel good and diminishes the employee’s view of the manager.
Communicate the details
You should communicate to each employee the specifics about pay actions they’ll be receiving either to their base pay and/or an incentive award. Explain not only what to expect but why and how these pay decisions were arrived at. You can also include how approvals work. This is the perfect time to reinforce performance high points and provide coaching with performance improvement tips such as:
- Are there specific things the employee needs to address in order to earn higher increases and incentive payout awards, and
- Would their financial goals be better served if he/she expanded their role or moved into different areas?
Even if the conversation is disappointing to the employee, try to end on a positive note and make sure to follow up with the employee if they have questions that couldn’t be answered at that time.
Armed with these communication tips, managers can begin having more productive pay discussion and move a step closer to improving employees understanding and perception of pay.