Talking with Employees About Compensation

This article was written by Mark Mitford, Managing Director of HR Catalyst Consulting. Mark will present "Top 10 Middle Market Company HR Mistakes" at the NFFS 2024 Industry Executive Conference on February 27, 2024.

It is that time of year when many companies are working on employee performance reviews and getting ready to review and deliver information regarding salary increases based on 2023 performance.

It’s easy to have conversations with employees about their pay when they are getting a significant increase. Managers love those conversations since they deliver a great message for the employee to receive. 

The more challenging discussions come when there is going to be a smaller or perhaps no increase for an employee for various reasons. Usually, those conversations are with employees who are very new to the company, not performing well, or on some form of formal disciplinary action. 

There are occasions when an employee will receive no increase or a small increase even though they are a good performer. This is because they simply are paid very well already. They typically have been in the position for years and continued to move up on the pay range over time. You can’t continue to give increases to highly paid employees. It isn’t good business and just makes your internal equity issue worse not better. As you see there are many scenarios that a manager needs to be prepared for when delivering the message about pay. 

Ideally, your employees understand what their position’s pay range is internally and where their pay falls against that range. This is considered pay transparency. With the buzz word of transparency out there for everything then why not be transparent about pay? It’s a powerful thing, but many business owners are hesitant to share this information openly with employees.

A few years ago, I was meeting with a client and discussing this exact topic. The client had a great company culture and paid their employees at or above market pay in most cases. I recommended he be transparent regarding pay with his employees. This would allow him to give good performing employees smaller increases and allocate more money to increase lower paid good performing employees pay more. Guess what, when he took my advice and ran with it, pay conversations went surprisingly well. He called me and gave me this feedback. I’m glad he took my advice and this led to more meaningful conversations with employees about pay and how they could increase their pay long term by moving into higher paid roles. 

Employees can’t argue against facts. They may not like the facts, but they are what they are. In my experience, sharing specific pay information openly with employees on their respective pay relative to the pay range for their position is a very good thing. It helps equip managers with information that they need to feel confident when discussing pay with their employees.

I have included a link in the button below for a great document by Payscale, our compensation benchmarking partner. It goes into specific actual scenarios for employee conversations on pay. It could be a helpful tool for you, especially if you are a newer manager and haven’t had to have compensation discussions with your employees before. This information can help these conversations go much better. 

HAVING PRODUCTIVE CONVERSATIONS REGARDING PAY