As I write this blog, the United Auto Workers’ strike is still going strong. I am reminded of all the compensation conversations, or the lack thereof, with employers throughout my career. I wondered if it might be a good time to think about how managers should be trained to have this conversation.
I found this article by Amy Gallo in the Harvard Business Review on “How to Discuss Pay With Your Employees.” Gallo recommends having the conversation “early and often.” One of the people she got advice on this topic from was 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 Program:
“‘The more frequently you have the conversation, the easier it is,’” Gallo quotes Narayanan as saying. “He suggests you start the year by discussing compensation. Talk about what kind of bonus or raise the employee might expect if they meet their goals—or don’t. Then have regular check-ins throughout the year to talk about how they are performing. That way, they won’t be taken aback by your formal evaluation and salary decision at the end of the year.”
Reviews Sent Only to HR
I have heard of situations in which no performance review is given to the employee at all, yet the manager may have submitted a review directly to Human Resources and their boss. They didn’t want to have the conversation with the employee about what they were submitting to their higher-ups. The review was complimentary, they might have reasoned, so there was no reason to do a review with the employee. Cynically, I believe that the primary reason they did not want to do the review was because, since it was positive, they felt it was likely the employee would ask for a merit-based pay increase.
Shying away from the conversation, or even going so far as to avoid giving the employee the opportunity to discuss compensation, is not the answer. It breeds resentment because an intelligent employee will figure out why the manager has never given them a review. That resentment grows even exponentially if more than a year goes by without at least a cost-of-living-adjustment.
Lack of Performance Reviews
The strategy of foregoing performance review conversations to avoid the compensation conversation also can be implemented at the organizational level. I have even heard of organizations that decide not to do any performance reviews at all—for anyone—for at least a full year.
The UAW strike should teach us that this is not a conversation that will go quietly, politely away. Not talking about compensation with employees—especially if the department heads and executives are seen as being in a hugely better financial position than the rest of the employees—is a recipe for disaster.
Gallo notes the importance of framing the conversation about compensation as a partnership between employee and manager. A primary motivator of the UAW strike is the sense that the majority of employees have not benefited from the financial success of their companies. The perception—and perhaps the truth—is that executives at the companies have dramatically benefitted while the average employee in these organizations have not.
One way to highlight a partnership relationship with employees is to emphasize their value to the company. In addition to offering a raise when it’s deserved, the manager should acknowledge how the employee’s specific contribution makes the company as a whole more profitable.
Contribution to Organizational Value
Having compensation conversations that are tied to the contribution of value to the organization should become part of the corporate culture. That way, when an employee doesn’t receive a raise, the conversation can be centered on why the manager feels their contribution did not help the company become more profitable. And when the employee made a successful contribution, they will understand that it was recognized, and that is the reason—and no other—that they are being rewarded with a higher salary.
Do you train managers to have compensation conversations with employees? If so, how do you do it? What strategies have you found to work best?