As a leader, being able to hold a productive conversation about compensation that benefits all parties involved is critical. You need to know how to steer the conversation in such a way that everyone involved is happy with the outcome. Compensation conversations are an inevitable part of management in any organization. Compensation is always a top concern throughout the employee lifecycle, from talent acquisition to performance management. And rightfully so, it’s a given that employees will want to have discussions about compensation at some point. Even though perks can generate initial excitement, greater transparency and understanding around compensation are essential to retaining your most talented and productive employees.

In fact, research indicates that many employees have a difficult time understanding their total compensation package. Even more concerning is that a large majority of managers and leaders have absolutely no idea how to properly hold a compensation discussion.

Without trust and communication, employee dissatisfaction and turnover rates will be much higher. And, as you should know, leaders are the key to employee retention and development, especially as it pertains to performance management. To help leaders hold productive compensation conversations, here are some tips for empowering managers with the tools and knowledge to engage in meaningful discussions.

employee compensation

Leaders Are Key to Compensation Conversations

Leaders are an absolutely crucial component when it comes to all types of discussions that happen with employees, compensation conversations included. But with that being said, most managers are ill-equipped to discuss their organization’s compensation strategy. Even worse, they’re largely unprepared and unsure of how to go about the particulars of compensation with each team member.

Furthermore, it’s often difficult for them to discuss ideas surrounding compensation with confidence, resulting in more confusion for both leaders and employees alike. Managers need to be bought into compensation discussions. Generic responses or avoiding talking about compensation will only put off employees, as well as potentially increase distrust and, ultimately, turnover rates. Ultimately, it’s much easier to coach a workforce as a whole toward achieving their ultimate performance goals when leaders are equipped to have these conversations and provide a clear response to employee questions.

Tips For Leaders When Holding Compensation Discussions

Leaders have a lot going on, that’s no secret. Many managers feel like they’re too busy to truly take time to understand their organization’s compensation practices, let alone figuring out how to juggle compensation conversations with each employee. Here are some useful tips to help leaders facilitate meaningful compensation discussions with their team and employees.

Ensure Total Transparency and Proper Communication

It’s important for leaders to know and understand the organization’s compensation philosophy and guidelines before approaching any one-on-one discussions with employees. It’s important to remember that several different factors can influence promotion decisions, such as equity within the team, competitive market information, clear levels of position, and the degree to which performance is taken into account.

It’s surprising the degree to which both leaders and employees struggle to understand their own organization’s compensation packages and details. To clearly articulate and accurately your compensation strategy, you need concise resources that you can easily explain to employees. You need to be able to provide compensation information to your employees with confidence. Make yourself available for questions that anyone might have about compensation through training sessions, info sessions, and easy-to-use tools.

Make Sure the Conversation Isn’t a One Time Thing

Just as performance management should be a continuous, open topic of conversation, so should compensation. Be sure to let your team know about changes in the market and career opportunities regularly, as well as ensuring they know about any changes to compensation.

Ensure Data is Shared at Entry Level

Employees cannot buy into your compensation plan if it isn’t transparent, or they don’t properly understand it. Employee compensation software gives your employees access to data about their compensation. Leaders and employees should also have access to salary history information, in addition to market data, compensation ratios, turnover risk, and performance data. This ensures that every employee understands both their compensation and the process of decision-making. Such software can prevent a lot of headaches and misunderstandings surrounding compensation and can help to ensure that employees don’t feel left out or short-changed.

Be Clear About The Reasoning Behind Compensation

Compensation discussions can be awkward if approached incorrectly. A manager should be able to answer tough questions about why their employees make the amount they do and how they might be able to increase their salary. This includes confidently hosting discussions about promotions, merit increases, and bonuses. Transparency and honesty are key when it comes to any conversation about compensation. In many circumstances, there might be hurdles to raises or bonuses for certain employees. Leaders need to be prepared to discuss this. For example, if someone is close to maxing out their salary in their range, tell them so that you can take steps together to get them promoted. Employees will be more motivated to do better when you show that you care about not only their compensation but also their growth within the company.

Employees Should Understand Rewards Packages

The complexity of crafting a compensation package is often not understood by employees. It’s not always a straightforward process, there’s a formula for how organizations come up with fair compensation. A company’s compensation goes well beyond just salary, so a detailed breakdown of all the benefits is important. What’s more, many employees are just as intrigued and motivated by additional rewards and compensation as they are by their salary.

Leaders who are able to host successful compensation conversations can build a lot of trust with their employees. Managers should be able to confidently explain and take ownership of compensation decisions, but in order to do so, they need to be provided with the right training, resources, and direction. Organizations should spend time ensuring their leaders are able to have more meaningful discussions with their employees surrounding compensation.