Compensation is a sensitive topic for many employees. Tie compensation conversations to employees' professional goals to guide a productive conversation.
When an employee is unhappy with their compensation, investigate what they wish their compensation looked like. Then, once you understand what specifically they want, work with them to give them a path to attain their desired compensation.
Why We Tie Professional Goals to Compensation Goals
Adequate compensation (salary, time off, and benefits) is a basic need for employees to feel valued at work. While over-paying employees will not increase their job satisfaction or motivation, under-paying employees will negatively impact their job outlook. Identifying why employees are unhappy with their compensation, framing why their compensation is currently reasonable (if it is) in your eyes, giving them a path to attain their desired compensation, and supporting them on that path will positively impact their perspective.
How We Tie Professional Goals to Compensation Goals
When a team member expresses dissatisfaction with their compensation, ask them what specifically makes them dissatisfied. Is the dissatisfaction related to their salary, benefits, or earned time off? All three are part of their compensation package, and investigating all of these aspects will re-frame the compensation discussion. Whereas most employees start off simply discussing their pay, a holistic assessment of their compensation may cause them to realize the other aspects of compensation are more important to them.
If the employee's key concern is in fact pay, ask what they believe they should be paid and how they arrived to that number. If they state they have received more competitive offers from other employers or that they feel they should make what other employees in the company make, map out what you'd like to see from the employee in order to reach that desired level of pay. In some instances you may realize that you are under-paying your employee, in which case the best remedy is to increase their pay to an appropriate level.
However, in many instances, employees will realize someone else makes more than them and perceive the situation as unfair, either due to their perceived superior abilities or another's perceived inferior abilities. In these instances, you have some choices. You can remind the employee of what their co-worker does that brings value (without discussing or confirming the co-worker's actual pay), decline to discuss the private matter of another employee's compensation, discuss how the timing of hires and job market demands can change compensation discussions over time, or commit to reassessing compensation across your team and come up with a plan to correct inconsistencies.
As an aside, note that in the United States you can not legally forbid an employee from discussing compensation with co-workers, nor can you punish them for doing so.
Most importantly when discussing a desired pay increase, you should explain what you need to see from the employee to reach the level of pay they want. For example, if they want a $30k raise, you can describe the types of job responsibilities a person at that pay level may take on. You can keep the description generalized enough to avoid associating desired pay with a co-worker's actual pay (e.g., "to justify that salary, you would need to be responsible for running a team / department P&L / owning some number of large customer accounts"). Tying compensation goals to professional goals can more properly frame the employee's expectations about pay, give them a deeper appreciation for the responsibilities that come with higher pay, and motivate them to focus on attaining professional goals.
If the employee is less concerned with pay but wishes to have more time off, depending on company policies and nature of work, you may be able to offer higher time-off accrual, one-time adjustments to time off, or more flexible working arrangements to give your employee what they want. Similar to pay increases, however, more flexibility is not necessarily a right: it can be framed as a reward for demonstrated performance. Check with your HR team to find out what is possible before discussing adjustments to time-off accrual or more flexible working arrangements; you will need to ensure that whatever you offer is fair, non-discriminatory, or otherwise in violation of company policies or applicable labor laws.
Finally, if the employee wishes to have a better benefits package, you will need to discuss the specifics with your HR team. Benefits adjustments are generally not made for individuals, but a discussion about benefits can lead to you uncovering general team-wide desires for benefits packages. This can guide your executive and HR teams in annual benefits planning, potentially leading to adjustments to your entire company's benefits package. If an employee expresses interest in this, ask them to take some responsibility in recommending changes. Have them research options for their desired benefits, and see if someone on your HR team is willing to work with them to estimate benefits cost changes on an individual and company level to implement their plans.
Regardless of the decisions reached, your employee should walk away from a compensation discussion feeling valued. Ideally, they have an idea of what is needed to either (a) reach their desired compensation level, or (b) reach a next step or conclusion in discussing the aspects of compensation they care about most.
Example of an Equitable and Fair Compensation Discussion
The following skit demonstrates several aspects of a positive compensation discussion that will leave the employee feeling valued, regardless of negotiation outcomes:
- The supervisor presents compensation changes in a clear, organized manner that shows consideration and prioritization of the discussion.
- The supervisor focuses on professional growth and concrete plans to attain a promotion.
- Focuses on the employee instead of discussing a co-worker's promotion path and compensation.
- The supervisor breaks down the factors that feed into compensation decisions.
- The various aspects of compensation are covered to give a picture of the employee's holistic compensation, not just salary.
Example of an Unfair and Demotivating Compensation Discussion
The following skit demonstrates the wrong way to discuss compensation with a valued employee, including:
- Appearing disorganized and rushed, as though this discussion is not the supervisor's top priority.
- Deferring to the "powers that be" (upper management or HR) as an excuse for the supervisor failing to secure the employee's desired compensation.
- Stating the employee did a great job but failing to compensate them.
- Telling the employee to generally continue doing a great job, without specific guidance to reach their desired compensation.
- Stating that "maybe" compensation will improve in the future, instead of setting clear expectations or creating concrete, results-oriented plans.
- Failing to ask the employee for their feelings and perspective on their current or proposed compensation.
Example of a Supervisor Deflecting Throughout a Compensation Discussion
The following skit demonstrates a less negative—thought still inadequate—compensation discussion:
- The supervisor instructs the employee to review specific facts and figures in various documents instead of knowing the numbers and sharing them outright.
- The supervisor deflects blame for a no-promotion decision to other management team members, absolving herself of responsibility.
- A co-worker's compensation is discussed with the employee in an attempt to make them feel better about their compensation.
- Telling the employee to follow up with HR if they have any more questions.
- AZ Central: How Does Compensation Affect Employee Retention?
- CMC Compensation Group: Understanding the Employee Perspective on Pay
- HR-Guide.com: Compensation: Outline and Definitions
- Management Study Guide: Factors Affecting Compensation - Part I
- Management Study Guide: Factors Affecting Compensation - Part II
- Thriving Small Business: 7 Keys to an Effective Compensation Strategy