Discussing money with employees can be uncomfortable, as Amy Gallo points out, writing for HBR.org. Even if you’re sharing the good news of a bonus or pay rise, it’s difficult to talk about specific numbers when valuing someone’s work, especially if you’re not the one making the decision.
Judging by a recent PayScale survey that revealed 73% of leaders don’t feel confident in their managers’ ability to have tough discussions about compensation with employees, there are many executives who need guidance in this area.
With this in mind, Gallo shares the wisdom of V. G. Narayanan, the Thomas D. Casserly Jr Professor of Business Administration at Harvard Business School and chair of the Board of Directors Compensation Committee Executive Education Programme.
Narayanan believes these discussions should be held regularly, as the more frequently you have them, the easier it will be. Start the year by discussing what kind of bonus or pay rise the employee might expect if they meet their goals. Then have regular follow-ups to gauge progress, then there will be no surprises at the end of the year in the formal evaluation.
While compensation should be linked to performance, Narayanan warns: “If you talk about money in the shadow of performance, it will sound like white noise and your employees will just fixate on the compensation.”
Therefore, you should carry out the evaluation first, with a focus on personal development and growth, then deliver news about compensation several weeks later.
As a human being, it’s natural that you will like and dislike certain employees regardless of their performance. So to counteract your biases, work on compensation decisions in teams of two to three people. It’s important that employees see the process as fair and consistent.
You need to prepare in advance for conversations about compensation, according to Karen Dillon, author of the HBR Guide to Office Politics and co-author of How Will You Measure Your Life? Write down and rehearse your main points.
Dillon comments: “Ask yourself, how is this person going to hear my message? It’s unlikely that you’ll be giving them a raise they’ll be absolutely joyous over. But what you say should persuade them that what you are giving them is fair.”
You also need to communicate the value of the employee. See the conversation as an opportunity to let the person know how important they are to the organisation. If you’re giving them a bonus or pay rise, don’t let it speak for itself – make it clear that the employee’s effort is appreciated and inspire them to continue their good work.
Of course, you might encounter disappointment from the employee, but Narayanan believes this is often because they lack information. So share the bigger picture by letting them know about company performance compared with your competitors and the range of pay rises or bonuses your organisation is offering for the year.
Tim Low, Vice President of B2B Marketing at PayScale, agrees with Narayanan, commenting: “Ground it in facts. Explain what people are getting for this job with this title in this market with these skills. It’s incumbent on you to understand what it means to be paid fairly.”
You should also explain how the decision was made. Even if you didn’t make the call yourself, give as much detail as you can.
However, be ready for some emotion even if you think you’re delivering good news. Narayanan says: “You can’t be Santa Claus and give everyone everything they wish for.”
Try to address their concerns. Be on their side – if you think it’s warranted you could investigate whether there’s more money available for them and get back to them in a couple of days. But make sure you don’t reward people for “throwing tantrums”. Otherwise, you’ll be setting a bad precedent for future discussions.