Compensation Conversations Guide
Four Parts of a Compensation Conversation
The compensation conversation should be viewed as a continuation of performance conversations with four parts:
Employee Value - Share with the employee that their contributions to the team and company are valued; Celebrate for a job well done!
Total Rewards - Cash compensation is just one part of an employee’s total rewards package (salary, benefits, and perks).
Factors taken into consideration during the Compensation Review:
Performance - There is a link between pay and performance, and it’s an important factor in pay decisions. Managers should be prepared to provide some details on their employee’s performance.
Other factors - Current job and job level, compensation parity with peer employees (internal equity), localized compensation market data based on work location, and budget.
Questions and Next Steps - Provide the employee the opportunity for questions and reiterate how they can grow and/or provide impact in the future (i.e., if the employee is dissatisfied with the compensation increase).
Note: if you are talking with an employee who is not getting an increase but expecting some news, you can share that we look at the items above in bullet #3 when making those decisions.
Conversation Tips
DO . . .
Prepare:
Learn or understand the employee’s expectations on total rewards. What do they value most? (e.g., career growth, work/life balance, base salary, etc.)
Identify and articulate key messages that you want to convey including specific points to address the employee’s total rewards expectations. Do this in advance of the meeting with the employee.
Consider the logistics for the discussion:
Hold the discussion in-person or video conference call and allow sufficient time to have a meaningful conversation (a minimum of 20 minutes recommended).
Encourage a candid discussion:
Listen to the employee’s concerns (if any) and perspectives.
If you don’t know an answer to an employee’s question, tell them that you will get back to them. Discuss the employee's question with your direct manager.
Take ownership for the company's process and the outcomes of the compensation decisions. Do NOT say, for example, "I would have given you a raise but an executive or HR decided not to".
Thank them for their honest feedback.
DON’T . . .
Promise a future compensation change or a future promotion:
If the employee is disappointed with their compensation increase (or lack thereof), it can be tempting to infer that they will receive a bigger compensation adjustment in the future. Circumstances may change and it’s never good to promise or hint of a future compensation change. The key is to listen rather than immediately respond.
Blame your leader or others if your employee is unhappy with the outcome:
Managers should take ownership of the compensation increase (or no increase) decision. See below on talking points, and refer to the FAQ that will assist you in answering employees’ questions. If you still need assistance, please discuss any questions/issues that your employee may have with your direct manager.
Potential Conversation Flow
Overview of compensation process: “We review compensation annually. Our goals are to ensure that our compensation programs are competitive compared to the market and you are rewarded aligned to performance.”
Context for compensation increase (or no increase): “Various factors go into our compensation decisions including your performance, market data, and your work location. Specifically, market data has been used to establish base salary ranges for every role/job level, and based on specific geographic location’s compensation market data.
If they’re receiving an increase: “You’ve had a great past year and I’m pleased to share with you that your new base salary has increased to XX,XXX and this is effective as of [effective date] and will be reflected in your upcoming paycheck.”
Opportunity for them to respond: “How are you feeling? Do you have any questions?”
If they are not receiving an increase: There may be different reasons for an employee not receiving an increase; below are a few scenarios.
Employee recently joined the company. In this case, you can let the employee know that we will review salaries again, next year.
Employee’s performance does not meet expectations. In this case, continue conversations about their performance; let them know that since the company aligns performance with pay, they will not be receiving an increase at this time, and we will assess again next year.
Employee’s compa-ratio is above market (i.e., above 115% compa-ratio). If the employee is not getting an increase because their compensation is currently above market, explain that market data was factored into their compensation decisions including the employee’s work location. You can share with them that survey market data has been used to establish salary ranges for every job, and based on their role and work location, their current salary is currently above the market competitive range. You can share that our philosophy is to provide fair compensation, and that market data is reviewed every year prior to the Compensation Review to ensure our employees are being compared to the latest market data. Managers can also assure employees that we will not be reducing their compensation if their current compensation is considered above market.
There may be employees that have a compa-ratio significantly above market compa-ratio. Compa-ratios should not be shared with employees, however, managers may choose to share the broader market position category with the employee (i.e., “below market” (if below 85% compa-ratio), “within market competitive range” (between 85% and 115% compa-ratio) and “above market” (above 115% compa-ratio)) if you feel it helps the conversation. For example, “Currently, your base salary is considered above market when compared to the local market for your job.”