A five minute formula for conversations about employee compensation

Keep conversations about employee compensation short and to the point

Now, what I got for you here is a very simple formula. It consists of five parts and it’s almost always good news. It goes like this. Here’s how I want you to talk to your people about employee compensation. Sit them down. Don’t allocate a lot of time. This is a five-minute conversation. Here’s the script.

“Congratulations, your new salary is $59,500. That is an increase of 2.5%, which puts you, for the first time, in the fourth quartile, which is the top – you know, nearing the top of what anybody gets paid to do the kind of work you’re doing. We do that for you because of the outstanding contribution you’re making and all the hard work. Keep it up. See you again next year.”

Or “Congratulations, your new salary is $39,000. That is an increase of 5%, which is the maximum we can allow anybody in this calendar year. This puts you, for the first time, in the second quartile. Now, you still got a lot of room to grow. We’ve got another and if we work effectively toward promoting you and you earn that promotion, there’s more room yet. You’ve got a great future here. Keep up the great work. See you next year.”

There’s almost no way this employee compensation conversation can be bad and it’s almost always a congratulatory speech.

Again, fill in the blanks. I think you’re going to find that if you disconnect this whole conversation from the conversation about your last year’s performance and you talk about employee compensation as an independent activity, this conversation will go reasonably well.

Basic do and don’t of employee compensation conversations

Do talk to employees like an adult to an adult.

Do build an employee compensation system that stands up to scrutiny.
If you don’t have that, it’s hard to talk to them like an adult. If the behind the scene stuff is a shambles, then you have a lot of explaining to do and that’s where the root of a lot of our problems are, by the way.

Do talk to each people about where they fit in the larger picture.
Steven Covey has a great quote. He says, “It’s more important what people are becoming than what they’re getting.” So, I told you earlier if you quit paying people, they wouldn’t keep coming to work, that’s true, but you know what, your best performers will leave you, not for more pay, first and foremost. They’ll leave you because they’re stagnated.

Differentiate with an employee compensation system that develops people and cares about people. Show them they have a career – even if their career is just, hey look, I just want to do interesting things. I don’t want more responsibility. I just like – I don’t want to go up the organization, but I just like to do interesting things and be given these assignments and that’s career, too. People have careers whether they’re going up in their career or they’re just kind of broadening in the job that they have.

Don’t link performance directly to base pay.
We talked about that a lot. You can’t do it very effectively, so please, don’t try.

Don’t discuss employee compensation with peers.
Don’t tell one employee or even confirm to one employee that what the other people are making by name. It’s okay if they have a general sense, but specific is not a good thing to talk about.

Don’t promise things you can’t deliver with employee compensation.
I’ve several stories of companies that set up interesting schemes then got into it and figured out they designed it improperly. And now, they have to welch on the bet. That is not good.