Make employee compensation discussions straightforward and fair

by on June 11, 2009 · 0 Comment POSTED IN: HR Info Center

Have an adult conversation about employee compensation

It’s important to try to change the tone and tenor of a conversation about employee compensation to make it straightforward and fair. If you can learn to do that, you’ll no longer need to refer to the Santa Claus or Easter Bunny or Tooth Fairy in order to have to explain how things work. And that’s the goal here; an adult to adult conversation about employee compensation.

Employee Compensation Based On Performance is a Lie
There’s an unusual way people think employee compensation is supposed to operate. In fact, they think this in large part because of what management has told them. In this context, pay for performance is a big lie.

Now most of you out there would say, “Well, wait a second. What the heck does that mean? We’re a pay for performance company.” Here’s what we tell our employees. “If you work hard and you do well, I’ll give you a good rating and you’ll get a big increase.” That’s a lie. It doesn’t really work that way. In reality, you don’t pay for performance with base salaries. You can’t pay for performance with base salaries. And most importantly, you don’t even want to base your employee compensation on that.

The number one thing that before anything else would best determine increases in employee compensation is your budget. Do you have any money? Think of raises like pie. Companies don’t have big pies these days. There are small pies if anything. And so, you look out at your workforce and say, “I’ve got a small pie and I’ve got all of you to feed. How are we going to pass this out?”

So, the pie is your salary budget. The same principles apply to a nine-person company that apply to Exxon and Shell and Phelps Dodge and those companies with tens of thousands of employees. The first thing you’ve got to figure out is how much money do you have to put into additional fixed cost, which is your payroll. Before you ever talk to anybody about their individual contribution, you have to start with asking if you have any money to pay them more if they even merit it. That’s how it starts, with what you have in your budget.

Edited Remarks from “How to Drain the Drama from Salary Reviews: A Conversation Roadmap” by Gary Markle

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