Paul walks into the boss’s office. “Sir, let me get straight to the point, I know the economy is really down, but I have a couple of companies after me, and I would like to ask for a raise.” After a few minutes of haggling between them, the boss finally agrees to a 10% raise, and Paul gets up to leave happily. “One minute”, says the boss to Paul, “which companies are after you by the way?” “The gas company, cable company and phone company”, says Paul. (source: The Good Day! www.thegoodday.ca)
Has this ever happened to you? Your employee walks into your office and starts making a case for why they should be paid more and you feel unprepared and at risk of losing a great employee. It happens more often than I like to see where employers feel like they are at a disadvantage when talking about salary increases. And sometimes it can feel like a threat from the employee that sounds like “I need to make more or I am leaving.”
Well it doesn’t have to be this way. There are things you can do as an employer to prepare yourself for salary discussions, so you and your employee feel satisfied at the end of the discussion.
Here are 6 things you can do today that will help you be more prepared when it comes to salary negotiations:
- Set Your Compensation Philosophy. As an employer, decide how you want to compare to the marketplace. Do you want to pay above, below, or in the middle of the marketplace? This will help you make decisions about all the different items you include in your compensation package and will also help you define the kind of employee you will be able to attract and retain.
- Know Your Numbers. Take time to document both the wages you are paying and also the non-wage items that contribute to the Total Compensation you are providing to employees. Add up all the extras you pay for – vacation time, sick time, tuition on training courses, time off for courses, RRSP, cell phone, vehicle or parking pass, medical benefits, dental benefits, vision benefits, flexible schedules to save on daycare costs, gym pass, travel expense coverage, the list goes on and on. Basically anything that has a financial value attached to it can be added to Total Compensation and you will be surprised how quickly it adds up.
- Compare Your Numbers. Do some research and determine what the marketplace is paying for the same kind of position. Are you paying within your compensation philosophy (meaning – are you paying above, below or at market levels)? There are lots of online salary surveys you can access to help you see what the market is paying. These surveys have to be taken with a grain of salt as there are lots of factors that go into robust and valid salary surveys, so use more than one and see if you are getting consistent information.
- Consider Consistency. One of the most important factors in setting salaries and salary ranges is to be consistent across the organization. When negotiating with one person, you will want to make sure that you aren’t agreeing to something that will have everyone else knocking at your door asking for more money. Employees appreciate fair and equal treatment and taking this into consideration will potentially save you hard conversations later. Having said that, setting different salary levels for different employees is perfectly appropriate if you have a clear and transparent rationale that employees will understand. If one sales person is selling like crazy and another employee hasn’t reached their targets for the last 6 months, then you have an easy explanation for why the high performing employee would make a higher salary.
- Pick Your Timing. Just because the employee wants to talk about a change in their salary doesn’t mean that you have to be ready to go on that topic right then and there. Take time to hear them out, listen to their information and rationale and then schedule a time for you to be able to respond. Take the time you need to pull your own information together and to decide what you want to do. Don’t make quick or snap decisions and don’t say No without first considering it.
- Get Creative. The answer to an employee’s request doesn’t have to just be No. If you don’t have capacity to pay a higher salary, think creatively. Is there something you can do in the future if they increase their skill level? Is there something that would be more beneficial for them than just an increase in salary? Could they have a shorter work week or save money on childcare by working from home one day a week? Be open to different ideas and creative ways of meeting the overall objective.
There are many factors that go into salary negotiations and these are just a few things that can help you manage those negotiations more effectively. At Engaged HR, we work with employers all the time to ensure that their salary negotiations go well. We use these steps, and more, to create a win/win strategy as much as possible!
Your Assignment: The best place to start is at the top. Do you have a compensation philosophy? If you do, good for you! Most employers don’t. If you are one of the ones who don’t, take some time to think about what your philosophy is and see if there is anything you need to do to make sure you are living up to it. If you get stuck, give me a call or make a comment, I would be happy to help you work your way through this!