How to Talk to Employees About Compensation

Talking about pay with employees can be awkward. After all, it’s hard to get around seeing the dollar amount on our paycheques as a direct reflection of what we’re worth. That can make for some uncomfortable conversations if the expectations don’t match reality when it comes to pay.

“Once you’ve established your compensation philosophy, consistently and transparently communicate what it is.”

Inevitably, there will be times that employees have requests, questions, or complaints around pay. Here’s how to get the most bang for your buck out of compensation conversations and enter into talks about money well-prepared.

  1. Know your compensation philosophy. As an organization, you need to establish your compensation philosophy. This means articulating who you want to be as an employer, how you want to approach total rewards, and where you want to stand as an employer in relation to the market to remain competitive. Whether you want to sit below, match or pay above market will depend on many factors, including your organization, your industry, and the current labour market in your area.
  2. Share your compensation philosophy.  You may know what your compensation philosophy is, but do your team members? Once you’ve established your compensation philosophy, consistently and transparently communicate what it is. Put your compensation philosophy in writing and make it easily accessible to all employees – your employee handbook is a great place to do this!
  3. Know what the work is worth. Employees often have emotions about money, especially when they don’t understand why they’re paid a certain amount. Remove some of the emotion and encourage transparency and equity by conducting a compensation survey and establishing salary ranges for each position. That way, you’re looking more objectively at what the work, rather than the individual, is worth.
  4. Discuss often. Compensation decisions shouldn’t come as a surprise, so communicate regularly about money! Conversations about pay become less awkward with practice. Talk about compensation structure, how incentive and bonus decisions are made, when raises happen, and how performance goals and targets tie into compensation.
  5. Let them make their case. Do you have to give employees a raise every time they ask for one? Absolutely not. There are many reasons a salary increase may not be in the cards: the budget won’t stretch that far, their performance doesn’t justify giving them more, they’ve maxed out of the salary range for the position, etc.
    Regardless of whether you think you will be able to approve a raise request, don’t slam the door shut before you know what they’re asking. Employees deserve a chance to make their case! Show that you’ve listened, understand what they’re requesting, and have taken the time to consider their request. Though it may take an extra 10 minutes to hear them out, doing so shows respect, encourages open communication, and builds a culture of transparency.
  6. Get creative. Saying “no” to an employee’s request for more money doesn’t have to be an entirely negative conversation. There are many ways to soften the sting in the form of low-cost employee perks – things that hold value but have little impact on the bottom line. Opportunities to work from home, flex days, designated time for work-related creative projects, professional development, cross-training, opportunities for career growth… the list goes on, so get creative and find ways to offer employees more of what they value without spending more!

Your Engaged Assignment: Do you have a solid compensation philosophy in place that is clearly and consistently articulated to employees? If the answer is no, the current competitive labour market means it’s time to make this a top agenda item. Take five minutes today to get a meeting about total rewards philosophy on your leadership team’s calendar! And of course, we are happy to help make this happen!