Compensation Conversations: Why They Matter and How to Proceed

Compensation conversations don’t have to be awkward. Here’s how and why to engage in these important discussions, and a few good tips for mutual success.

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How often do you talk to your employees about compensation? Many managers find employee compensation conversations uncomfortable. Yet it’s important to talk with employees about their pay and benefits regularly and compare their current salaries to market rates for their positions. In this article, we’ll explore how to start a compensation conversation and why these discussions are important.

What’s so important about discussing employee compensation?

Discussing employee compensation opens a dialogue about pay and benefits. Managers gain the opportunity to discuss the salary range for the employee’s role and scenarios in which they may be eligible for a salary increase, promotion, or bonus. If the employee is already taking on extra work and responsibilities, the angle is slightly different. The employee gains the opportunity to talk about their current salary and reasons why they may deserve a pay increase.

Why are compensation conversations difficult?

Employee compensation conversations can be difficult for different reasons. Among them is the fact that many people believe it’s inappropriate or rude to discuss what others consider “taboo” topics. Typically those include politics, religion, and money. Compensation conversations are about money. For that reason, many people simply don’t feel comfortable or don’t know how to approach and discuss the topic. But while pay transparency in social settings may not be the norm, in an employment relationship it’s a necessity.

Tips and talking points for discussing compensation

If starting a conversation about compensation seems daunting, don’t let that stop you. These tips can help you address the points that are most important to you and your employees.

1. Review your company’s data on employee compensation

Before initiating the compensation discussion, it’s a good idea to review your company’s policy on employee salaries and wages and all the current employee compensation data. By reviewing these items, you’ll understand the basics of how your employees are compensated for their time. This can help you start thinking about the topic in a logical fashion.

2. Review your company’s policy on promotions

Reviewing your company’s policy on promotions allows you to discuss options with your employee. This is especially helpful if they are currently up for a promotion or you see advancement in their future. The conversation can then shift naturally to the next steps in the employee’s career path.

3. Review data on industry salaries

What are the high, low, and average salaries of other individuals in the field? Does your employee’s salary fall into that range given their levels of education and experience? Performing this step can help determine if an employee is being paid fairly and ensure they’re not being underpaid. Employers who want to keep good talent aim for salaries that meet or exceed those at other companies.

4. Start salary discussions early

When it comes to talking about salaries and salary expectations, it’s best to get started early. Most prospective employees want to see your salary range in your job ad. This immediately lets the employee know if you can pay their preferred wage. If you don’t list the salary range in the job ad, bring it up as soon as possible in the interview process, preferably during the first call. From an employee perspective, this demonstrates that you are upfront about your pay and benefits and likely transparent in other areas of your business as well.

5. Review the employee’s performance

If you plan to discuss compensation with an existing employee, review their performance in advance. Have they been on time with their reports and met or exceeded all their performance metrics? Are they showing initiative? Have they completed all the training for their position and inquired about more? If so, your employee may deserve more compensation.

If you discover they’re on a performance management or improvement plan, prepare to discuss their current salary and how to attain a higher salary tier or raise.

6. Open on a positive note

Regardless of the content of the compensation or salary conversation, always open on a positive or neutral note. If you’re talking with a new hire, simply remind them of your salary range and ask if that range is acceptable.

When broaching compensation matters with existing employees, let them know you’d like to schedule a meeting about their current pay, benefits, and career goals. Once the meeting begins, explain the discussion topic again and invite questions up front.

7. Ask relevant questions

During those meetings, ask relevant questions for information and clarification. These questions could include:

  • How do you like your current position?
  • Do you feel you are being paid a fair pay rate for your position, experience, and education?
  • What job title or position would you like next?
  • Do you know the average salaries or pay ranges for people in your field?
  • Are you ready to take on more training or learn new skills to position yourself for a potential promotion or raise?

8. Remember to listen

As questions are asked of you, remember to listen and not interrupt. They can lead you to points you hadn’t thought to address now or in the future. For example, do you need to better educate employees on your benefits plans or the company vision for expansion?  Provide relevant and informational answers. And try to gain an understanding of how the employee feels about their position, the company, and advancement prospects.

9. Review compensation regularly

Plan to review each employee’s pay and compensation package regularly. Compare them to the national averages for similar positions. You never want an employee to fall behind the pay scale, especially if you like their performance and work ethic. Also analyze what other key compensation metrics you’ve established for insights about your current plan’s effectiveness. Generally, it’s wise to review salary and benefits packages yearly.

When it’s time to discuss salary and salary expectations, have no fear. Instead, be confident in the knowledge that you’re devoting worthwhile attention to important elements of mutual growth and stability. Embrace the opportunity for transparency and positive dialogue. With current employees, the compensation conversation can involve their personal growth, career goals, and next steps for achieving them. Discussing salary with prospective new hires is an initial step toward establishing a good employer-employee fit.

For more along the HR and business management journey, count on tips, tools, and resources from Workest by Zenefits.

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