Source: OfficeVibe
In general, money is an uncomfortable topic - whether you're talking about it with friends, family or in the workplace. In fact, the salary conversation managers have to have with their employees is perhaps one of the most awkward conversations of the year.
Managers have the very sensitive responsibility of playing middleman between HR and employees to discuss everything from salary increases to bonuses (or lack thereof). They have to follow existing guidelines regarding compensation, but they also want to keep their teams happy and engaged.
The two most important words to keep in mind here are CONTEXT & COMMUNICATION. Difficult conversations with employees are not only about what you say, but also about how you say it.
In this article you will learn:
- Key reasons why communicating context is essential.
- 3 things HR needs to train managers in and understand about rewards.
- The truth about pay and employee engagement.
The importance of communicating context around pay
So why is context so important? Take a look at these figures shared by PayScale:
The most important word in these statistics is "believe." Employees make assumptions because they do not know the context - and this is exactly the problem.
Why is context so important?
First, giving context helps put things in perspective, and it explains the "why" behind the amount employees are getting.
Second, no one likes to be in the dark about things, especially when it comes to the foundation of how you value someone. Imagine being assigned a salary but not understanding its meaning. It takes up a lot of space in people's daily minds to deal with this, so you want to make it clear to them.
Third, imagine what it's like for managers to feel they have to explain the meaning of an amount, without really understanding how to explain it. It's like asking someone who has never seen a field hockey game to comment on a game.
Harvard Business Review emphasizes the importance of context:
Employers today must arm managers with accurate market data that reflects the market to base the conversation on facts. Finally, they must remember that how their employees feel about pay think is just as important as what they actually get.
Rewarding is a sensitive subject
Rewards are already a very sensitive topic, so passing on the wrong information, or even sharing the right information in the wrong way, can contribute to your employees losing trust.
When you discuss someone's value - because that's what a salary represents - in any terms, feelings are involved so managers need to be able to give a good, thorough explanation of the salary awarded. It is also important for managers to understand that people feel an emotional connection to their salary: this also affects their perception of that salary. Therefore, the employee's perception may differ from reality: an employee may feel that they are underpaid when in fact that need not be the case.
What are the risks of not communicating salary?
Simply put: when you don't clearly communicate the "why" behind the salary during the salary interview , employees are going to draw their own conclusions about the pay they get. And when we follow our own thoughts, the conclusions we draw can be far from the truth. So much so that they can lead to strong feelings of resentment or dissatisfaction.
The CEO of Payscale, Michael Metzger, shared an interesting statistic about this:
As many as 35% of people who are paid above market standards have no idea that this is the case! In fact, they think they are paid below market standards.
- Payscale's CEO, Michael Metzger:
This means that the problem is not necessarily about money itself, but how we communicate about it. There is a huge gap between actual reality and perceived reality when it comes to one's salary. The consequences of this lack of transparency are that employees leave your company in search of what they think is better.
The three most important things managers need to understand before communicating about pay
It is important to bridge the gap between what HR does understand about rewards and what employees do not understand. This is where managers play a very important role. Are you a manager? If you haven't had the training from your HR team yet, ask to share the proper explanations behind the amounts you are being asked! It will make all the difference in your relationship with your team.
- The company's compensation philosophy
Essentially, your organization's compensation philosophy is tied to its core values and goals.
Managers must be able to answer all employee questions about rewards in line with this strategy so that there is consistency across the board.
Typical pay questions from employees:
- Why this particular percentage increase?
- Why did I receive a bonus of this amount?
- How much will my pay rise next year?
The more context you give employees when answering their questions, the more they will act as ambassadors for your company, because where there is understanding, there is appreciation.
Pro Tip : You want to inspire your employees to keep working hard. When you explain their salary increase or bonus, you should also explain their value to your organization and give them recognition and appreciation in non-monetary terms.
- Market positioning
Managers need to be trained to understand how the company is positioned in its market. Being able to explain this well to existing employees is an important tool for retaining your employees. Remember that context is important in this one.
Here are some key elements to keep abreast of:
- How exactly a company determines its assortment/offer
- How they stay competitive
- To whom they compare themselves
- Whether they are leading or lagging behind in the industry
Pro Tip: the market is constantly changing. Stay on top of what's happening in the industry so you'll be able to answer any salary questions your employees may have throughout the year.
- Actively share the company's vision regarding salary adjustments
You may have attracted great talent, but now you also need to retain them. One way to do this is to make sure you and your team are informed on an ongoing basis about how you reward as an organization. This includes:
- How to discuss salary increases with your employees
- Promotions
- Demotions
- Bonuses
- Role changes or title changes
- Function reclassification
Pro-tip: Disconnect conversations about pay and performance. Performance should be linked to development and personal growth, and in addition, pay should be according to market standards. When you conflate reward and appraisal, growth becomes extrinsically motivated, removing authenticity and fun from the process.
The link between rewards and employee engagement
Through recent research, we found out that people (mostly millennials) don't just care about salary when looking for a job. Money isn't everything. They want to learn, grow, connect with their peers and be part of something bigger. They want purpose and meaning in their daily lives.
However, this does not mean that salary is not important, or that employees will settle for less than what they earn. It means that only when they are paid fairly can they also feel deeply valued. They ultimately care more about personal growth than money.
Salary is about the story of how much an organization values their employees and whether the salary is distributed fairly. An unfair distribution of salary (internal or external) can cause employees to leave the company. With what you reward as a company, you directly show what you value.
HBR describes this as follows:
Pay is a crucial part of engagement because it is not just a number; but because it is an emotional measure of how valued an employee feels by their employer.
The connection between pay and corporate culture
Just as every member of an organization - from its employees to its CEO - is responsible for embodying the company's culture and its values, every member of an organization must understand the company' s compensation policy and thus salary conversation , as this is also part of the company's culture.