How to Prepare Managers to Talk About Pay

Too often, front-line managers aren't prepared to talk with employees about compensation—or why it's not higher.

When managers speak with employees about their compensation, they should be prepared to address:

• The factors that go into setting salaries or hourly wages, as well as variable incentive pay, such as bonuses.
  

• Where an employee's compensation falls within his or her position's salary band or pay range and whether similar jobs are grouped in a common band.
  

• How they can help employees acquire the skills needed to advance.

New York City-based TodayTix, an online reseller of theater tickets, uses scripts and role-playing to help managers become more comfortable leading these conversations. The firm also gives managers guidelines on when involving HR in these talks is appropriate, such as when a conversation could potentially become contentious.

In other situations, managers are encouraged to trust their gut and reach out to HR if they think they will need help for any reason.

"Our managers tend to be younger, with limited management experience," explained Jes Osrow, the company's director of people and culture. So they may initially need direction and support before having pay conversations. "We want employees to feel that they are being heard and that their manager is advocating and will advocate for them as they improve their work and performance," she noted.

While TodayTix is transparent about discussing the skills, attitudes and background necessary for each job in the organization, it shares information on salary bands with only managers and senior executives. Because the bands for each department differ—engineering has much wider bands than other departments, for example—the company's leaders are concerned that sharing the information widely could hurt morale. Two people who are at the same level but in different departments could have very different salaries, and that could cause resentment.

Instead, the company focuses conversations about pay on what employees can control. "The goal is to help managers have productive conversations with their direct reports about career trajectory, growth, transitions and salary expectations," Osrow said. During this conversation is when managers should also discuss the employee's career aspirations, so the company can provide what is necessary to retain that worker. "Money is not the only thing they value," she remarked.

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Focused Conversations

Organizations should first determine what their managers need to handle pay-related conversations. Researching what peers in other companies are doing and having leaders weigh in on how to best handle these conversations are good places to start.

Heidi Pozzo, head of Pozzo Consulting in Portland, Ore., suggests a quarterly process that not only focuses on pay but on how both the organization and the employee are performing. Showing employees how the organization's performance affects their base pay and any incentives is important, she noted.

If an organization is not meeting its goals, it is unlikely to have the financial resources to make significant increases in compensation budgets. This insight can also help inform discussions that managers and employees have about employee performance and pay levels. "Broad communication helps set expectations about whether [we'll pay incentives] and how much," Pozzo said.

Effective conversations about pay are also crucial to employee retention, said Courtney Paulsen, HR analyst at Hayward, Calif.-based Alameda Electrical Distributors. After the 275-employee company revamped its pay structure based on five performance rankings, it gave managers a discussion guide to help them talk with employees about how their ratings affect their pay.

That can lead to a discussion with employees about how they can improve their prospects for higher pay in the future, Paulsen said.

For instance, she explained, when talking with long-tenured employees who might be near or at the top of their pay range, managers can ask if it makes sense for the employees to acquire new skills so they can move to a role that pays more.

Joanne Sammer is a New Jersey-based business and financial writer.

Related SHRM Articles:

Putting Humanity into HR Compliance: Collapse the HR Triangle—Enable but Don't Be an Enabler, SHRM Online, April 2019

Employers Less Transparent About Pay, Aspire to Be More Open, SHRM Online, March 2019