For those of you at companies with matching fiscal and calendar years, the start of Q4 means performance review season and the accompanying compensation conversations and decisions we all dread.
Embedded in most of the conversations going on in around compensation is fear and anxiety that someone is going to end of on the short end of the stick.
For direct reports it’s the fear that they’re being underpaid relative to people with comparable experience, expertise, and ideas within their industry, both inside and outside of your company.
But for managers – that fear and anxiety is a bit more complex. Sure, you’re in charge of the purse strings for your department or business unit, but you’re also likely to have influence over how much money goes into your purse to begin with. And only so much of that cash can be used on existing talent after strategic planning. We’d love to be able to give everyone a pay increase that keeps up with inflation + extra cheddar for those who’ve exceeded expectation. But chances are you don’t have enough cash in the pot to do that. So you’ve got a choice to make:
- Rob Peter to pay Paul. In this scenario, you’ve got multiple direct reports who deserve a fatter pay increase than the rest of the pack but there’s just not enough money to reward both appropriately. Peter may deserve it equally or even slightly more, but Paul is the one who may jump ship if he doesn’t get a pay bump…
- Give everyone equally crappy pay raises that barely keep up with inflation because that feels like the most equitable scenario. Good luck getting the same input from your stars when the find out that stellar performance isn’t something you reward.
- Ration paper and toner, commit to reusing coffee filters and call it a green initiative. Which really means that you’re going to increase salaries despite budgetary realities and deal with the consequences elsewhere.
- Split hairs over insignificant differences so can feel like you did right by everyone. A 3.4% increase for Sarah exceeded, a 3.3% increase for Tim who met expectation, and a 3.25% increase for Marge who underperformed this year. That seems fair, right?
Most managers opt for Option #4. On it’s face – it’s a weak move. And while that may sound like I’m beating down managers for handling those conversations poorly- the reality is that I don’t blame them. Afterall, the majority of managers have no background in compensation theory and zero training that would support their ability and confidence in the handling compensation decisions they’re faced with. They want to treat everyone fairly so they can sleep at night.
Too bad their compensation nightmares aren’t over once the decisions have been made. Next, they have to be prepared to handle conversations with their direct reports around those decisions. If most managers don’t feel confident in their ability to make compensation decisions, they most certainly don’t have the necessary confidence to handle strong conversations about compensation with the people that report to them.Which means the managers are likely fumbling around, talking after the sell, or waxing poetic about something they don’t understand. Which their employees interpret as an meager attempt to distract or evade the question entirely. It’s madness.
But it’s madness that is preventable. It doesn’t have to be this hard!
Companies should be training their managers on compensation. It should be done in a way that’s engaging. And it should teach managers how compensation works at their company, provide context around linking performance to compensation and give managers skill practice at handling the compensation conversations they so fear. Once managers are trained and equipped to handle the decision making and conversations around compensation, they should be held accountable. Providing managers training and supporting their fluency related to speaking compensation is a skill that will follow them throughout their careers – which means its a move to develop existing talent. It’s also a move that helps managers and the companies they work for save face and employee engagement. That can’t be bad.