I have never met a leader or manager that enjoys discussing the annual pay review decisions with their team. I am sure there must be some out there somewhere, but honestly, I have never met one. As a leader, it is possibly one of the most difficult discussions to have. This is often because the entire process of how pay reviews are calculated are unclear to most employees. In fact, a World at Work survey showed only 13% of employers felt their employees understood the process. This lack of understanding and transparency leaves a leader in a tough spot.
Further research from the same group showed that 67% of employees feel they are not paid fairly. The honest truth is that most employees are usually paid fairly, but everyone believes they are worth more. It is the same when drivers rate their own driving ability, 76% think they are above average which is a statistical impossibility. 76% of people can not be above average, but everyone thinks they are.
Transparency is key
Let’s start with those two statistics in the opening paragraph. 67% of employees feel underpaid, but only 13% of them understand how their salary package is put together. As a leader, this is the key to turning a difficult discussion in to an easier discussion. Pay reviews are typically tied into annual performance reviews along with the financial performance of the company over the past year. So be clear about how it all ties in together. If the company has not had a good year, be honest about it up front and the impact this may have.
Most companies will know by the middle of Q3 whether or not its going to be a good year, so you have plenty of time to discuss this before the year end results are in. Combine this with a discussion around their own performance objectives. Even if the company has had a record year for generating profits, if an employee has not hit their goals, they should have their expectations managed. After all, if you have not delivered the required results, why should you get a big pay rise, regardless of how the company performed overall?
Avoid using percentages
When it comes to discussing the specific salary increase, percentages always sound less impressive. There is a big difference between, you are getting a 2% increase and you are getting an extra $200 a month. Its just how the human mind works. 2 is a smaller number than 200, so even though 200 may be 2% in this example, the increase seems better. It is also makes the increase more tangible to the employee. They can picture what they could do with an extra $200 a month, a lot easier than working out what 2% of their pay is.
Finally, it is important to keep this conversation as objective as possible. The tone of the conversation should be very matter of fact. This is the number, and these are the reasons why. One of the worst things that a leader can do is try to inject emotion into the conversation. The statistics show the employee is going to feel they should have received more. So, trying to convince them this is amazing with a positive tone of voice and loads of enthusiasm is not going to work. They are not going to buy in to the belief.
Likewise, leaders should avoid making the majority of the conversation about the reasons why the number is not larger. You can provide some insights as part of the overall conversation, but do not get trapped in focusing on this. It is a discussion that has no positive outcome. All the employee is going to hear is that you do not think they are worth more.
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