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14 March 2019

How to tackle pay conversations

Having conversations about money can be difficult – especially when they involve an element of confusion, disagreement, or feelings of pay inequity. How can you teach managers to handle pay conversations, and how can you empower staff to ask for more money if they feel they deserve it? Comparing staff compensation against market benchmarks is important to remain equitable and competitive, but even more important is ensuring staff perceive they are being paid fairly. That means transparent communication about compensation is key to both attracting talent and keeping employees happy and engaged.

Understanding what each role is worth

A good salary can attract top talent and show you value employees and their contributions. Unfortunately, not all organisations can afford to offer the highest salaries to attract and secure talent. So how can businesses decide what a fair and competitive salary looks like for each role, while still keeping within budget?

The first step is understanding the market value of different roles, rather than relying on a one-size fits all pay framework. Salary structures can be seen as time consuming and bureaucratic, and have the tendency to become static and hard to change. Understanding the market value of different roles can be a difficult balancing act, but taking the time for proper research and benchmarking will ensure your compensation is perceived as fair and equitable. In this exercise, weigh up:

  • What a prospective employee wants
  • What they’re worth on the market
  • What they’re worth to your business
  • What you can afford to pay.

Being armed with a solid understanding of the market worth of each role – and coming prepared to explain the rationale behind this benchmarking – is crucial when tackling pay conversations.

Empowering staff to ask

Pay conversations aren’t just difficult for managers: they can be equally uncomfortable for employees who feel they should earn more for their efforts. The onus is on leaders to create a culture where staff are empowered to address feelings of inequality – and to ask for more when they feel they deserve it. Addressing employee pay perceptions is crucial to retaining talent: research shows that 60% of employees who believed they were underpaid said they intended to leave their job.

Managers can remove the stigma from pay discussions by framing them as open, two-way conversations, rather than a one-way dialogue. Creating perceptions of fairness and equity in your pay approach is they key to employee satisfaction, and relies on clear and effective communication.

When it comes to pay satisfaction, research has shown that how employees feel about the pay process at their organization – in terms of fairness and transparency – matters far more than how they’re actually paid relative to the market. In fact, this feeling of fairness has 5.4 times as much impact on satisfaction as an employee’s actual pay. That means if an employee feels appreciated by an employer who fosters open communication about their performance and compensation, they are far more likely to be satisfied and stay at the company. Having open, transparent compensation discussions is especially important when you consider that 90% of employees who felt they were paid below market rate were actually paid at or above market rate.

Breaking the hard news – justify your stance

Sometimes, compensation conversations can become difficult, and you need to sit down with an employee to help them understand why they didn’t get a raise. If these conversations don’t go as planned, it’s often because an employee isn’t getting the rationale or information they need. In these situations, careful communication is key. Schedule a sit-down meeting with the employee, and come prepared to justify your stance with a clear rationale.

To prepare for these tough conversations, be prepared to share as much research as you can on the following:

  • The market benchmark and pay ranges for jobs in their role.
  • How your organisation has decided this employee’s salary with reference to market strategy and internal equity.
  • The potential for additional bonuses or benefits. These do not necessarily have to be monetary – they can take the form of flexible working arrangements, days off, trips to conferences, and more.

When you meet with the employee, make them feel valued and appreciated – having taken the time to do your homework, clearly outline your rationale and look for ways to reach a resolution. Don’t be afraid to get curious – does the employee feel like there is a different or more accurate market benchmark for their role? Do they feel they should be paid higher due to their performance or tenure? If an employee feels their pay should be higher because of the added responsibility they’ve taken on, the solution could be re-distributing their workload or re-assessing the scope of their role. Starting a constructive dialogue can get to the heart of the employee’s issues and help you reach an equitable resolution.

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