For most employees, money is not just a means to an end, but often also a symbol of self-esteem and self-confidence. Through their pay, they get to feel recognized and valued for their contributions. They also use it to gauge how they measure up to their peers.

For leaders and business owners, money is just as vital. They know that having the right compensation in place can position the company well in the marketplace so that it attracts and retains the right talent, which in turn contributes to business success and growth.

With the current economy posing so many challenges for companies worldwide, many organizations are now in a difficult financial position, which dictates that they either keep costs flat or reduce them significantly.

Since compensation and benefits costs are typically one of the most expensive items on a company’s balance sheet, reducing salaries or keeping them flat seems like the most obvious solution. Communicating such decisions though is the tricky part for most leaders.

A Leader’s Toolkit for Challenging Compensation Discussions

How to Prepare for Compensation Discussions

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Following these steps will help leaders feel confident when delivering compensation messages to their employees:

  • Understand the company’s total compensation philosophy and what drives it.
  • Be familiar with the reasons behind any salary decisions, such as market practices, budgetary restrictions, performance ratings, compensation surveys, salary ranges, the employee’s position in their salary range, and how they compare against their peers.
  • Be comfortable with the tools to be used when delivering compensation messages, including letter templates, Excel spreadsheets, or HR systems.
  • Review FAQs prepared by the HR team, addressing possible questions from employees and how to respond to them.
  • Be prepared to deal appropriately with any reactions, which could range from indifference to anger or even threats.

How to Communicate Salary Decisions

Preparing for each individual meeting is crucial and will help leaders communicate salary decisions in a professional way. The following steps will ensure the actual meeting unfolds as expected and all questions and concerns are dealt with in a suitable way:

  • Welcome the employee and reiterate the intent of the meeting.
  • Explain the impact of company performance, salary ranges, or market practices on compensation decisions.
  • Explain the link between salary and individual performance results or performance rating.
  • Review the employee’s salary information: current annual base salary versus new base salary, and effective date for changes (if appropriate).
  • If the company allows it, communicate the employee’s salary range and their position in the range.
  • Go over other components included in the employee’s total compensation, as applicable: bonuses, overtime, benefits, training and development, relocation costs (if they moved from another city or country and the company covered those costs), sign-on bonuses, etc.
  • Check for understanding and ask for questions or feedback.
  • Outline resources for additional information, such as the company’s intranet, HR policies, or HR team.
  • Thank them for their work and contribution, and encourage them to reach out should they have additional questions.

If a leader anticipates a difficult conversation, they should not only review all relevant materials and information prior to the meeting, but they should also contact their HR team to help coach them on how to address a difficult employee or unexpected reactions.