When it comes to employee pay, don’t be fooled by everything you read. While there are several issues that rank higher as reasons for leaving jobs, (unresolved issues with bosses or co-workers often ranked highest on the list), what you pay your employees is still a big deal!
First of all, nothing says more about how a company or an individual manager “walks its talk” around employee “value” than the decisions made about pay. How important is the work I do? How am I performing? Is success being shared? Are they being fair? These are the questions employees will “read between the lines” to answer. And it is not just the decisions that create unrest, but also how those decisions are made and communicated.
We’ve learned something about what employees believe about pay by talking to job candidates; listening to their reasons for leaving jobs when the issue is rooted in concerns about pay. Here are some communication tips we’ve gleaned from what we hear.
Have Something to Say. Employees want their employers to take the pay issue seriously. If you or your company is too casual or unstructured in how you approach pay, it is going to be difficult for employees to make sense out of what they see as seat-of-the pants decisions. A job candidate will say – “I finally got the raise I was asking for, but I don’t want to work for a company where I have to beg to be treated fairly.”
When a company has policies that state when an employee can expect their pay to be reviewed, and how pay decisions are made, their employees tend to have more confidence in the process, even if they disagree with the decisions.
Communicate the Whys Behind the Whats. Many employees are confused about how increases are determined. While employers tend to give (or not give) pay increases for objective reasons…
- To respond to changes in the employment marketplace
- To reward performance/contribution
- To reflect a change in their “ability to pay”
…they do not always clearly communicate those reasons to their employees, leaving room for misunderstandings and unmet expectations.
Context is always important…
“This year, our company will be awarding increases a bit higher than what we have given in the past or will be able to give in the future. It is a year where our benchmarking pointed out we needed to adjust rates of pay upwards in all job categories.”
Another rule of thumb is to link pay to performance.
“Even though this year the company’s profit challenge means that raises will be less than what they have been in the past, I am able to give you the higher end of the increases available because of your personal performance. You were ranked in the top 25% of all employees.”
Communicate the Details and the “Big Picture.” Sometimes supervisors get so hung up on what they can’t do for their employees in terms of pay increases, they don’t communicate effectively about the big picture of what they already have done. For example, an employee who is already earning at the top of their pay range can be disappointed with a low rate of pay change, IF they don’t know where their pay level ranks compared to others.
“I know this percentage of pay increase isn’t the same as you have enjoyed in the past, but that is because you are now earning at a much higher rate than you have before. You are still in the top 20% of what we are paying for people doing your job. I’d like to schedule a meeting where we talk about how best to get you prepared for a different, higher paying job.”
On the flip side, an employee who is starting at the bottom of their pay range and therefore earning a larger percentage increase needs to have a context for what to expect down the road.
“I am able to offer a nice increase in your rate of pay this year because you are doing a good job mastering your job. You are likely not to get this same level of increase next year, but our intent is to keep rewarding you with increased earnings as you are able to contribute more.”
Mixing the Pay and Performance Discussions. Pay and performance are related, but different topics that are best discussed in separate conversations. Employers who mix the two, often end up in places they don’t want to be – 1) defending their assessments of performance, or 2) disappointing high-performing employees who didn’t get the raise they felt they deserved.
Pay and performance need to be linked, but the decisions that link them should be presented to employees in separate conversations. They have different goals; they need to be focused on different issues.
Explaining Pay Differentials. If you use pay ranges and place employees within the range based on a defined set of criteria, employees need to fully understand those criteria. This is particularly important where employees are part of large or diverse work groups, making them ripe for perceptions of favoritism or discrimination. For example, a female employee who wonders why she is the lowest-paid employee in her mostly male work group might assume her employer is treating her unfairly because she is a woman unless she knows that her ranking is based on objective measurements of experience or performance.
Prepare for “Next Time” – Empower Employees to Impact Pay. Compared to the more interactive performance review meeting, the pay change meeting can be much shorter and to the point. A common sequence is as follows…….
- The pay change. What the employee earns now; what they will earn in the future; as of __________ date.
- The specific reason(s) or context for the pay change. On what basis was the pay change earned?
- An explanation of how the pay changes for each individual in a group were arrived at.
We suggest you follow up these discussion basics with a discussion on how the employee can impact future pay increases. This part of the discussion can range from…..
“Right now you are ranked at the lower end of the pay range for your position because of your limited experience in the job. That will change over the next 12 months. The main thing about your performance that impacts your rate of pay is_____________________.”
“You have done a good job of putting yourself at the top of your pay range for the job you are in. Your pay increases going forward will be based more on how effectively you prepare yourself for increased responsibilities. The most important thing you can work on in the coming year to earn a job change or promotion will be_____________________________.”
Factoring in the Company’s Financial Position. Wage increases are always contingent on the company’s ability to pay them – the financial facts of life that cannot be avoided in any pay conversation.
At the current time, surveys show that slightly less than 50% of U.S. workers have not had a merit increase since 2010, and less than 25% have not had a merit increase since 2008. Most employees are willing to forego pay increases as long as they believe their employer is being truthful about their financial circumstance, and that the principles by which pay increases will or will not be given, are universally applied.
“This year, there will be no pay increases for any employees, management included. Because our goal is to retain the employees we have, we are freezing all wage increases so that we retain jobs. We will be reviewing our financial situation every six months, along with polling our industry peers to see what is happening in our industry at large. Our intent is to pay our employees fairly and consistent with the current job market stands.”
The “Total Comp” Approach. One of the mistakes many employers make is not presenting a comprehensive ‘story’ of their employee’s pay package – benefits, perks, and other costs they pay on their employee’s behalf. We see it all the time, often helping employees take a second look at their current comp package to recognize that it may not be easily replaced. Most employees, absent a full understanding of their pay, will focus only on their paycheck, which in some cases can be only half of the total costs their employer is paying on their behalf.
To request a copy of a “comprehensive pay presentation” worksheet you can use to lay out and present an employee’s “total comp,” contact firstname.lastname@example.org.