The holiday season is here, performance reviews are due, and the time to talk compensation (and pay increases) is upon us. What do you say when your best and brightest ask for more money than you’re able to provide?
- “No, HR wouldn’t let me.”
- “Yes, I’m sure we can work something out.”
- “Let’s talk a bit more about your overall compensation. There may be some other things we can do. What do you find really motivating?”
Not every manager naturally knows how to communicate about compensation and there are some very common mistakes made.
Here are five common compensation conversation pitfalls (and how to avoid them).
Forgetting the data
Too often managers talk with employees without all the information they need to have a detailed and fact-driven conversation. Do your homework; more and more people want to understand how increases are determined. Here is a list of information that may be shared depending on your organization’s level of transparency:
– Typical pay increase at the organization; organization performance or budget
– Pay range for the job
– Performance goals and metrics, including how they support organizational objectives
If you think your employees may come prepared, plan ahead and come prepared to explain key data points, and how they align with company objectives and strategies.
Focusing too much on salary instead of the person
A common pitfall is when organizations try to remove the human element and focus only on facts and data. It might seem practical to create a formula for all pay increases, but here’s the thing: pay is personal. It can mean the difference between an employee moving into a larger apartment or enrolling their son or daughter in dance lessons. What’s more, a person’s impact on your organization should be based on a complex set of factors from goals to skills to experience, and more. Every conversation about pay is an opportunity to uncover what really motivates your employees, and what you find out may surprise you. It may not be money!
Negotiating the wrong things
In most organizations, there’s a logical and sound reason for doling out increases, the trick is to know that reason and communicate it clearly. Increases aren’t the best thing to negotiate as it undermines the comp strategy and rationale. That said, merit review time is not completely without negotiation. It’s a great time to dig further into the perks, opportunities, skills, and other employee drivers. Would a regular work from home day help? What about a more flexible schedule?
Don’t connect the dots between performance and pay
Most companies do some version of pay for performance. In addition to linking bonus and incentive payouts, 50% of organizations surveyed in PayScale’s 2016 Compensation Best Practices Report said the main reason for giving raises was performance-based pay increases. Compensation reviews are a good time to connect the dots for employees. We talked about X during your performance review. That relates to Y increase. The other dots to connect may be between employee performance and company results, employee performance and team results, and between company performance and employee pay.
Make assumptions about the employee response
Perhaps one of the most uncomfortable pitfalls to avoid is when managers assume they know how an employee will respond in a discussion about increases and compensation … and are wrong. I worked with an organization whose managers were devastated. They had a few managers who worked particularly hard to champion their employees and advocate for the best increases possible. After all their hard work, the managers proudly announced to their employees the increase they’d won on their behalf. And … the employees’ faces fell. Not having anticipated this response, the managers couldn’t smoothly handle the employee objections.
I’ve typically guided managers to anticipate employee questions, which is different from assuming their response. When they anticipate employee questions, they take into account both what is likely to happen given the data and history involved, and the particular employee’s typical reactions to information.
About Mykkah Herner
Mykkah Herner, M.A., CCP, is a Compensation and Human Resources Professional with ten+ years of HR experience. He has designed compensation strategies for over 400 organizations, poising compensation to drive business results.
See also:
8 ways to spot a star performer
The Christmas bonus: a small business owner’s guide
6 cool ways to compensate and motivate your people
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