At any stage of the employee lifecycle—from talent acquisition to performance management—compensation is always top of mind. While exciting perks garner initial excitement, the key to engaging and retaining talent begins with greater transparency and understanding around compensation.
Research shows that many employees lack a clear understanding of their total compensation package. In fact, Salary.com’s 2020 Pay Practices and Compensation Survey revealed that more than 74% of respondents said that the managers at their organizations are not formally trained to talk with employees about how their compensation is determined.
We already know that managers are the key to employee retention and development—particularly when it comes to ongoing performance management—but without trust and communication, there is a higher risk of churn and disenchantment. In this article, we’ll share five tips to help you empower managers with the tools and knowledge to engage in meaningful compensation conversations.
Why managers are the key
HR professionals don’t have the time or bandwidth to have individual compensation conversations with every employee in their organization. As a result, managers are critical in cascading this information throughout the company. However, most managers don’t feel equipped to speak to their organization’s compensation strategy—let alone unpack the particularities with each of their team members.
Further, their lack of confidence makes these discussions awkward and uncertain, often leaving employees more confused than before. Without manager buy-in, the compensation process remains a black box. When employees are told no with avoidant explanations like, “I wanted to give you more but HR told me I couldn’t,” this builds distrust and increases the likelihood of turnover.
When managers are equipped to have these conversations and deliver a clear response to employee questions, not only will the broader workforce feel a greater sense of alignment with the process, but it will be easier to coach them toward their ultimate performance goals.
5 ways to support manager compensation discussions
Managers have their plates full. Balancing coaching with their own work, many don’t have the time or desire to unravel the intricacies of their organization’s compensation practices. Consider the following five ways HR teams can help reduce the learning curve and empower managers to have meaningful compensation conversations with their direct reports.
Increase transparency and communication
If you haven’t already, it’s critical to document your organization’s compensation philosophy or strategy. This could include equity within team, competitive market data, clear position leveling, and how promotion decisions are made in relation to performance.
If it’s challenging to document it, it’s no surprise that your managers and employees alike have a hard time understanding it. It’s imperative to create concise and digestible resources that clearly articulate your compensation strategy. Then, make yourself available to answer questions as managers cascade this information out to their teams—whether through training, info sessions, or easy-to-use tools.
Share more data at every level
Employees can’t buy into your compensation strategy if they lack visibility. Compensation planning software puts the data directly into the hands of your employees. Both employees and managers should have clear visibility into market data, compensation ratios, turnover risk, performance data, compliance flags, and salary history. This levels the playing field and ensures that no one feels misinformed about their compensation or the decision-making process.
Make the conversation year-round
As organizations move toward a more continuous performance management model, compensation should be a part of that discussion. Regularly touch base on compensation bands, changes in market data, and career growth opportunities to ensure your team stays informed.
Provide a breakdown of total rewards
Many employees are unaware of the planning and resourcing that goes into crafting a compensation package. Compensation extends far beyond just salary, so it’s critical to clearly break down the full value of each benefit. Tools like Compright make it simple to visualize and understand the specific components that make up each unique compensation package, so employees can see the full value of their rewards.
Share the reasoning behind decisions and opportunities for growth
Managers should be empowered to answer tough questions about why their reports make the amount they do and how to progress in their roles. This includes honest conversations about the path to promotion, merit increases, and bonus payouts. Honesty and transparency are key—be honest if someone is close to maxing out their pay in their range so you can work together to take steps toward a promotion. When you show your employees you truly care about their development and compensation growth, they will be more motivated to do better.
Compensation conversations build trust
With the right training and enablement, managers are well-positioned to confidently explain and take ownership of compensation decisions. Instead of a one-way conversation, democratizing compensation data enables more meaningful discussions between managers and their direct reports, which ultimately builds trust. With this approach, teams experience improvements in engagement, performance, and retention.