A Manager’s Messaging on Money Matters
Preparing Managers for Employee Compensation Meetings
58% of Businesses are Missing a Major Opportunity
Business leaders / Managers… If you could increase the return on your company’s largest investment with a few small adjustments to your existing processes, would that be of interest to you? What if you could also increase the long-term motivation and engagement of your employees while decreasing risk?
One of my primary areas of focus within HR has been Total Rewards which typically includes compensation, benefits, recognition and development. The focus of these combined elements is to help attract, engage and retain high performing employees. For years, studies have shown that higher engagement results in higher levels of performance.
Recently, I read a statistic that 57.8% of organizations do not provide manager training on how to communicate with employees about pay. This is a huge opportunity to drive engagement and, most often, it’s missed because people don't understand how to properly structure these conversations. So let’s change that. Here’s a phrase I want you to remember… “A Manager’s Messaging on Money Matters”.
I want to share a few ideas about communicating compensation changes but there are some initial assumptions we have to make before we begin. In managing compensation activity, organizations will typically have some basic structural practices:
- A compensation policy that outlines its pay philosophy, the basis for increases, approval requirements, etc.
- Pay practices that are tied to the market (perhaps within a certain industry if the industry has unique characteristics that affect the supply of qualified talent)
- A series of pay grades that contain pay ranges. The pay grade represents the level of each position relative to others and the range includes a minimum, midpoint and maximum. Midpoint typically represents the median rate that is being paid for that position in the market.
- A merit increase budget. This is a figure that serves as the basis for decisions on the amount of an increase. Once combined, all increases will need to average out to this figure.
The Preparation
The first thing to remember is that it’s important to prepare ahead of time. This is part of ensuring that your employee perceives you value both their contribution and them personally. I can’t stress this enough. Everyone is busy with competing priorities but these conversations are critically important to employees. Taking the time to prepare helps you to communicate that value.
As part of that preparation, review your company’s compensation policy (assuming there is one in place). Ideally, it will contain information about the organization’s compensation philosophy. Some will choose to lead or lag the market. Most will set the midpoint of their pay scales at the market rate.
Remember that the market rate for a position represents the pay an employee should receive if they are completely proficient in their responsibilities and are making a solid contribution to key business results. Employees with less directly-related experience will often start lower in the range. As the employee’s base compensation passes the midpoint of the pay range, the size of future increases should be lower unless their contribution level is greater than what would otherwise be expected.
It’s also important to realize that the combination of compensation (base, bonuses, incentives) and health and welfare benefit premiums may need to be considered. If the company pays a lower base but also includes a strong bonus potential or an above average premium contribution, the combination may be comparable to the market.
Next, give yourself time to identify several key points that you want to share with the employee about their contribution and value to the organization. Are they performing at the expected level? Are they needing further improvement or are they blowing the doors off? The overall merit budget for the period, the employee’s performance and their current pay in comparison to the market will typically be the basis for the pay decision. Whether they ask or not, be prepared to explain how they can increase their skill set, raise their pay and progress further in their career over time.
Finally, set aside at least 15 minutes of uninterrupted time for the meeting. Extra time should be added if the employee is a high or low performer or if you believe the approved action will surprise the employee.
The Presentation
Once you meet with the employee, share the pay decision and help them understand how that decision was made. If a formal compensation structure is in place (pay grades, ranges, etc.), let them know. If an increase budget has been set, explain that it’s the final average of all approved increases. For example, if its a 3% budget, some employees should receive higher than 3% because of their performance and others lower but the overall average should be 3%.
Tactfully discuss whether the employee is below, at or above the market rate IF it is relevant to the decision that was made. If they are not receiving an increase because of poor performance, there is no need to cover it. If they are not receiving an increase because their current pay is well above the market, that’s a relevant factor that they should understand.
Acknowledge the fact that pay is an important element of an employment relationship and the organization wants to do what it can to retain high quality talent. Pay is part of that equation. Discuss the performance factors that were considered. If they are eligible for other pay programs, they need to understand the program’s function, objectives targets, their progress against those targets and their potential payout.
I realize this may be a tough pill to swallow, but if you happen to disagree with the pay decision that was made by leadership, own it anyway. I have sat in meetings where a Manager told the employee that they had recommended a higher increase but it was not approved by leadership. This does nothing but undermine the employee’s perception of both the Manager (because they were unable to get it approved) and the leader (because they didn’t perceive the same value). It is not appropriate to give them additional detail on the increases that were provided to other employees, the reasons behind them or the impact on the budget.
Provide whatever context you can as much as it relates specifically to that employee. Remember that a lack of context for the decision will lead the employee to create their own narrative and that may be significantly different than the truth. Reinforce their strengths and achievements, sharing any additional feedback on their contribution or value to the organization.
Promises and Potential Predicaments
As you present your views on the employee’s performance and the two of you explore opportunities for them to progress, it may be tempting to promise (or hint) that they will receive an additional increase if they follow through. Unless you have a signed check with you that you can turn over to the employee at that moment, do not do this. Promises such as these have the potential to create something called an implied contract and, if the increase isn’t delivered, legal trouble can follow. If you believe that additional increases need to be considered in the future, explain that you will ask Human Resources or your leadership to continue monitoring the situation and then follow through on that statement.
Remember that the media is currently overflowing with commentaries on pay equity and unfair pay practices. There is much work to be done. But do NOT make any comment that could insinuate that a pay decision was in any way impacted by race, age, religion, national origin, disability, gender, sexual orientation or anything of the sort. Pay decisions are to be based on market comparative practices, employee performance, structured compensation programs and the like. Even if the decision is made to provide a female or minority employee with a larger than normal increase because of their classification, leave that out of the conversation. If that’s the sole basis for an increase decision, have Human Resources or your leadership team provide you with specific talking points.
Following Through
Finally, remember that communication related to compensation and career growth should not be a one time event. Employees need to understand the total compensation package that they are receiving, including base compensation, incentives, benefits, development opportunities, etc. Discussions on business performance should also be happening on a regular basis, enabling you and the employee to adjust performance objectives and developmental plans as needed.
Keep in mind that compensation and benefits are only part of the full engagement equation. But if they are supported by effective communication, they can make a huge difference.
Do your compensation or communication practices need work? Are they driving higher levels of performance effectively? If not, let’s prepare to win. Contact HR Strategies Now.
July 12, 2021
From Theory to Execution - Building a Culture That Demands Leadership If leadership excellence isn’t about knowledge, then what is it about? It’s about building an environment where leadership is required, visible, and unavoidable. Most organizations never get there. Here’s how the ones that do think differently. Step 1: Define Leadership in Behavioral Terms “Be a better leader” is meaningless. Instead, define leadership like this: “Addresses performance issues within 48 hours” “Delegates decisions with clear ownership and authority” “Drives clarity by aligning team priorities weekly” If you can’t see it, you can’t manage it. Step 2: Make Leadership Measurable What gets measured gets managed. Ask: Are decisions being pushed down or pulled up? Are leaders developing successors or creating dependency? Is accountability consistent across teams? Are new ideas being generated? If leadership isn’t measured, it becomes subjective - and subjective standards don’t scale. Step 3: Align Consequences with Expectations This is where most organizations fail. They say leadership matters, but they tolerate: avoidance of difficult conversations inconsistent accountability leaders who produce results but damage culture siloed and self-optimizing behavior You can’t have leadership excellence without consequences for non-leadership behavior . Step 4: Build Leadership into the Operating System Leadership isn’t a program. It’s how the business runs. It shows up in: how meetings are conducted how decisions are made how performance is reviewed how feedback is delivered If leadership only shows up in training sessions, it won’t stick. Step 5: Create Cultural Pressure for Leadership The strongest cultures don’t rely on top-down enforcement. They create peer-level expectations. Leaders hold each other accountable, teams expect clarity and ownership, and underperformance is addressed quickly and directly Leadership becomes the norm, rather than the exception. The Payoff When leadership becomes part of the system, execution speeds up, decision-making improves, teams take ownership, and senior leaders get out of the weeds. And the organization finally operates at the level its strategy demands. Final Thought Most companies are trying to teach leadership. The best companies build environments where leadership is the only way to succeed . That’s the shift. And once it happens, everything else gets easier.
Let’s address the uncomfortable truth: Most leaders already know what they should be doing. They just don’t do it consistently. Not because they’re incapable - but because something is working against them. What’s Really Holding Leaders Back? It’s not a lack of awareness. It’s a combination of three forces that quietly shape behavior: 1. Success Has Trained Them to Stay the Same Leaders are promoted because they deliver results. So they double down on what got them there: solving problems themselves moving quickly by making decisions solo stepping in when things go sideways The problem? Those behaviors don’t scale. But letting go of them feels risky. So they don’t. 2. Short-Term Pressure Overrides Long-Term Discipline In theory, leaders know they should: coach instead of direct develop instead of fix empower instead of control But in reality? Deadlines hit. Clients escalate. Revenue matters. So they revert to speed and control because it’s faster right now. And just like that, long-term leadership development loses to short-term execution pressure. 3. The Organization Quietly Rewards the Wrong Behavior Watch closely and you’ll see it - the leader who “jumps in and saves the day” gets praised. Or the leader who builds a self-sufficient team gets overlooked. Or perhaps the leader who avoids conflict keeps the peace and avoids backlash. Organizations say they want leadership excellence. But their reward systems often reinforce the opposite. Why This Matters More Than You Think When leaders don’t change: their teams don’t grow decision-making stays centralized innovation slows burnout increases at the top And eventually, the business hits a ceiling that no strategy can fix. The Real Work of Leadership Development If you want leaders to change, you have to change the environment around them. That means: redefining what “good leadership” looks like aligning incentives with the behaviors you want creating consequences for avoiding leadership responsibilities Because people don’t rise to expectations. They rise to what the system reinforces .
Most companies don’t lack leadership knowledge—they lack execution. Discover why leadership fails and what it takes to turn insight into results.
