Why You Should Talk to Your Employees About Compensation

Kate Conroy
August 22, 2023

Your employees are already discussing salary with each other. And it’s totally okay. In fact, their right to openly discuss pay is protected by law. Even if you don’t like it, there is nothing you can do about it. The choice you need to make as a business owner and decision-maker is if you want to be a part of the compensation conversation. Spoiler alert: you do!

What is a Compensation Conversation? 

A compensation conversation is any conversation about how much your employees are making, how much they can be making, or about your organization’s compensation philosophy.

The most direct compensation conversation is when a compensation change is taking place. This typically looks like an annual merit increase, a bonus, or a promotion. These are great opportunities to have a deeper conversation about the factors that allow you to provide the increased compensation. When discussing the why behind the increase, emphasize not only the overall success of the business but the individual’s specific contributions to that success.

You might find yourself in the middle of a compensation conversation during formal performance reviews or more informal conversations about growth and development. Typically these conversations center around the employee’s skill set and growth path. When the conversation ends, your employees might be thinking, “What’s in it for me?” So it’s important to bring compensation into the conversation. Allowing your team to see their growth doesn’t only benefit the organization, but also has a personal benefit for them.

As legislation about pay transparency rolls out, you might also need to have a compensation conversation with your organization, rather than in a one-on-one context. This is a great opportunity to discuss your overall compensation philosophy. Level set opportunities and standards, demonstrating the equal access all employees have to pay increases. Articulate what good looks like for your business, and how they can behave towards those expectations to influence how they are paid.

The Importance of Talking to Employees About Compensation

What’s in it for you, as a business owner, to take advantage of these conversations?

First, you have an opportunity to take ownership of the compensation conversation. When employees talk about compensation, it’s often in a negative context. They perceive they or a colleague is not being paid their fair share. They may feel like everyone is being underpaid. By engaging in compensation conversations, you address these questions and concerns head on, before they fester to the point where they are impacting your culture. Additionally, frame the conversation in a positive light by creating a line of sight that puts the employee in control of their compensation. Outline what actions and behaviors lead to business success and give you the ability to offer increases.

You’ve shifted the compensation conversation from negative (employees are upset and demotivated) to positive (employees see how to increase their earnings and work towards that). 

When and How Often Should Compensation Conversations Take Place? 

All the time and everywhere! Here are some examples of when and where these conversations can take place, whether formally or informally:

Quarterly Performance Reviews

These are opportunities to check in with your team members to see how they are progressing. Talk through the challenges they are having, so you can set them up for success in meeting their targets. Discuss their future goals and growth targets. This conversation may not always be directly about compensation, but once you’ve set the foundation for how performance influences compensation it will be present in the background of these conversations as a motivator. 

Annual Compensation Changes

Annual compensation changes are often actualized in merit-based increases, bonuses, or promotions with a pay increase. Whenever you are issuing a change in compensation, be sure to re-enforce the behaviors driving this increase. This will create a link for the employees between their performance and their pay. 

All the Time

Whenever an employee wants to start the conversation, lean into it! Sometimes it might feel challenging, especially if the employee starts the conversation by expressing they don’t believe they are paid enough. But it is well worth the time to have a conversation, hear the employees’ concerns, and provide insight into the company’s compensation philosophy.

How to Discuss Compensation With Your Employees 

When you are discussing compensation with your employees, create a line of sight. This gives the employee ownership of their career path. If they drive results for your business, their earnings will increase.

Recognize the significance of the conversation to the employee. An increase to you may feel like a shift in your operating budget, but to your employees, this is their livelihood. Often employees bring up concerns or factors that are totally unrelated to your business. Listen to them and let them know you understand their personal goals and aspirations are important, but be clear you can’t make business decisions based on the personal decisions of employees. Direct the conversation to create that line of sight. “If you do X, Y, Z then you are eligible to receive an increase or promotion.”  

Don’t assume your employee understands the basics of business budgeting. It’s not hard, but it’s often mysterious to many employees. Typically employees are not aware of the full cost of doing business. They don’t have visibility into benefit costs, rent, taxes, utilities, insurance, and other cost of goods and services (COGS.) You don’t have to open your books to your employees, but it’s helpful to present a high-level overview of business finances to clear up the misconception that there are excess funds going straight into the business owner’s pocket.

An HR Consultant Can Make the Compensation Discussion Process Easier 

It’s awkward to talk about money. Especially when you don’t have a solid foundation to lean on. This is where an HR consultant makes things easier. An HR Consultant can help you identify and articulate your compensation philosophy as well as develop a formal compensation structure to provide guidance as you hire, provide increases, and promote your team members. Additionally, an HR Consultant can provide coaching to leaders and managers to get your team talking productively about compensation as a motivator.  

Do you feel like compensation discussions are a roadblock, rather than a key component of your organization’s success? If this is the case contact us to get started on reframing the conversation.

Photo by cottonbro studio 

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