Payroll is by far your biggest expense and the cost of getting it wrong is tremendous. It is also something that your employees are very interested in but is rarely communicated well. These slides look at how we tend to look at compensation, how we can make it more approachable, and a look at how the way you communicate compensation affects your culture.
Key learnings include:
• How to use compensation as a recruiting and retention strategy
• How to find the value in compensation beyond money
• How to communicate compensation so it boosts productivity
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How Compensation Discussions Make or Kill Your Culture
Rusty Lindquist
VP Strategic HR Insights
BambooHR
Mykkah Herner
Head of Professional Services
PayScale
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How Compensation Discussions Make or Kill Your Culture
v
How Compensation Discussions
Make or Kill Your Culture:
Organizational Impact
Determining compensation
Communicating with executives
Communicating with managers
Communicating with employees
Your seat at the strategic table
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How Compensation Discussions Make or Kill Your Culture
v
How Compensation Discussions
Impact Your Organization
Culture
Performance
Engagement Retention
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How Compensation Discussions Make or Kill Your Culture
Making the Compensation
Conversation a Culture Builder
Don’t be offended
Be open
Take it seriously Be objective
Be proactive
Be Positive
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How Compensation Discussions Make or Kill Your Culture
Value Exchange
Experience in industry
Experience in market vertical
Experience in adjacent markets
Experience in field of discipline
Experience in adjacent disciplines
Experience with competitors
Product knowledge
Competitor knowledge
Time and experience in company
Education
Discipline training and certification
Supply and demand
Employee Value Drivers
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How Compensation Discussions Make or Kill Your Culture
Value Exchange
Experience in industry
Experience in market vertical
Experience in adjacent markets
Experience in field of discipline
Experience in adjacent disciplines
Experience with competitors
Product knowledge
Competitor knowledge
Time and experience in company
Education
Discipline training and certification
Supply and demand
Employer Value DriversEmployee Value Drivers
Base pay
Performance Pay
Paid time off
Benefits
Travel
Culture and environment
Work flexibility
Work/Life balance
Meaningful work
Who you work with
Challenging work
Opportunity to impact
Job security
Shared purpose / mission
Career advancement opportunities
Autonomy
Senior leadership
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How Compensation Discussions Make or Kill Your Culture
THE COST OF GETTING
Payroll is by far your biggest expense; the cost
of getting it wrong is tremendous.
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How Compensation Discussions Make or Kill Your Culture
1. Drop in engagement.
2. Drop in performance.
3. Distancing.
4. Sudden increase in negativity.
Early Indicators of
Compensation Misalignment
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How Compensation Discussions Make or Kill Your Culture
Executive Audience
• Leaders don’t want to be told what to do
• Leaders can be distrustful of change
• Leaders are decision-makers
• Many leaders have access to
information
• What matters to your leaders?
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How Compensation Discussions Make or Kill Your Culture
Execs are also Managers
Give them tools for success:
• Flight Risk report & the inverse report
• Disparate Pay report
Give them insight into what employees care about
• Am I making enough money to cover my basic needs (entry level)
• Am I being paid fairly (professional level)
• Am I being paid enough to deal with managing people (Mgrs/Dirs)
Give them talking points for comp conversations with employees
Report Relevant Info
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How Compensation Discussions Make or Kill Your Culture
• Sell the organization and the full package on the table
• Sell the benefits of the offer (initial or increase)
• Listen to the ask behind the ask
• Meet them and then move
Negotiation Skills
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How Compensation Discussions Make or Kill Your Culture
Manager Training
Compensation Plan Overview
Putting It Into Practice
• Compensation 101
• Philosophy & Strategy
• Structure
• Policies
• Linking Performance to Pay
• Calculating Increases
• Talking with Employees
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How Compensation Discussions Make or Kill Your Culture
Lead The Conversation
Finding out where you stack up vs.
peers can dramatically change:
• Desire to stay/leave
• Overall job satisfaction
• Exert more/less effort
I was approached by an employee who was very upset that
her base pay was being frozen. After going through our
philosophy, the employees pay compared to the grade and
range she was in the employee left the meeting with a smile
on her face, feeling positive about the conversation.
Monarch Landing, 300 employees
Source: Card, D., et al., (2011); “Inequality at Work: The Effect of Peer Salaries on Job Satisfaction.”
“Wow! This is what our employees need to see!
They only ever talk about what they see in their
paycheck, so this would really drive home our total
investment!”
Alberta Motor Association - 2,000 employees
of employees will
compare pay
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How Compensation Discussions Make or Kill Your Culture
Employee Pay is Low
Consider
• Should the employee pay be low?
• Is the organization able to adjust
employee pay?
Talking Points
• Start by appreciating accomplishments
• Mention market movement of the position if applicable
• Explain position in range
• Remind of last year’s adjustment amount if appropriate
• Discuss what you will or won’t do for increase or bonus depending on skillset,
performance, etc.
• Open the door
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How Compensation Discussions Make or Kill Your Culture
Employee Given No
Performance-based Increase
Consider
• What does the employee need to be eligible for the next round of increases?
• What potential does the employee have to move up in the organization?
Talking Points
• Start by appreciating contributions
• Remind of performance issues
• Explain position in range
• Discuss what you will or won’t do for increase or bonus depending on
skillset, performance, etc.
• Explain what they need to do to be eligible next go round
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How Compensation Discussions Make or Kill Your Culture
“I FOUND A
SALARY REPORT
ON THE
INTERNET”
• Conflicting information
• The “independent study”
• Position pricing vs. people
pricing
• The conversation
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How Compensation Discussions Make or Kill Your Culture
Follow BambooHR and PayScale on social media:
bamboohr.com/blog | payscale.com/compensation-today
Thank you!
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How Compensation Discussions Make or Kill Your Culture
Questions?
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Download our free eBook: Communicating Compensation: Your guide to
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PayScale
Notas do Editor
BambooHR (welcome)
BambooHR (intros)
BambooHR (ROADMAP)
Determining compensation using objectives and values
BambooHR
Compensation can have a profound impact on your organization. Employees, after all, are your biggest expense, and more importantly, the key to your organizations success. And compensation affects every employee.
So let’s take a look at three critical ways compensation impacts your organization.
BambooHR
One of the primary ways compensation impacts your organization is through culture.
We know how important culture is. Culture is the heartbeat of our companies. It fosters loyalty and satisfaction, it powers performance and engagement, and results in retention. All of these lead to reduced operating costs, and increased productivity, which themselves result in greater business output.
BambooHR
So Culture, as abstract as it may be, is a powerful strategic lever within our organizations. But sometimes our abstract view of culture means we fail to recognize how our actions actually impact it.
BambooHR
So for a moment lets think of culture as a story. Think of it as the shared narrative we create together about where we work. It’s a story we tell our employees, and it’s the story employees tell each other about where they work.
Thinking about culture as a story, can help influence the way you manage it, and invest in it. Because everything you do becomes part of that story.
Sometimes you’re adding words and scripts, and sometimes you’re adding whole chapters. Sometimes what you add creates cohesion, strengthening or reinforcing that story, and sometimes what you add creates confusion, detracting from that story.
Compensation, along with discussions and attitudes around it become a strong part of that story.
BambooHR
Because compensation is quite literally, the story we tell our employees about how we perceive their value.
BambooHR
And because few things impact a person more than their perception of their own value, and their perception of how we value them, compensation can be considered the keystone of culture.
Because all the stories we create about what we value as a company become subservient to the story we tell each employee about how we value them.
BambooHR
So how do we make compensation a culture builder. Let’s start with how to have constructive conversations about compensation. Because they don't have to be awkward, and they don’t have to be negative (and yes, that’s true even when you don’t have budget for monetary adjustments).
Here are some specific things you can do to help set the stage for productive compensation discussions, and guide them to fruitful conclusions when they happen.
Be open - Listen, your company’s attitude about compensation discussions are clear to the employees. It radiates with deafening clarity.
And if employees know that they can come in, and are welcome to have open conversations about compensation, then it makes a huge difference. You’re telling them that you value them, and you care about them feeling valued. But if they know that you’re not open, if they know that you hate compensation discussions, if they’re taboo, or really uncomfortable, then they won’t happen, and people will just leave. Often we find people would rather leave, and find a new job, then approach an uncomfortable compensation discussion with their company.
Take it seriously - Sometimes simply the act of being very sincere, of having a serious discussion can make the difference between them feeling valued or not. Remember, compensation is the communication of how much we value that employee. If they feel undercompensated, they’re feeling undervalued. This is deeply emotional. If you take it seriously, your story to them is that you’re serious about their value.
Don’t be offended - Compensation is inherently highly emotional, and if you have an obvious, adverse reaction to the conversation, you can unintentionally entrench the employee in their emotion by your reaction. HR and managers in a company need to know that they can happen at any time. They need to be prepared for it. And they need to not be offended when it happens. We’ll talk more about this a little later.
Be Positive - When you get asked, if you don’t make it a positive experience, you could be telling the story that you don’t care, or hate talking about it, and that can stifle future conversations and create a culture where it’s easier to just leave, then ask for a raise. Make it a positive experience. Even if you think the employee will end up just leaving, or isn’t worth trying to save, because remember, how you treat that conversation will be a story that gets shared, and will become part of a cultural narrative that you have to operate within.
Be objective - Diving in and deconstructing the misalignment by focusing on actual value, and the employees value drivers can help strip the emotion away from the conversation, and focus it on a more constructive end. Your objectivity and openness about the conversation can tell a strong internal story that the company cares about it’s employees, and is fair in talking about comp. In just a few minutes we’ll unwrap this part a lot more.
Be proactive - Don’t wait for compensation to be brought up. Having designated periods (such as an annual review) can help an employee feel like you care about being competitive with comp, and making sure the employee is fairly comped for their value. It can also cause employees feeling out of alignment to be at ease, knowing their comp review time is coming. Simply having it scheduled can help them feel more objective about the discussion.
Payscale
BambooHR
It’s very helpful to step back into a more objective, analytical view of compensation, because when it comes to comp, we often suffer from functional fixedness. Functional fixedness is a cognitive bias that limits a person to thinking about something in only one, traditional way.
So let’s look more broadly at compensation. Compensation is simply an exchange of value. It’s value the employee gives to the organization, and value the organization gives back. Some of that value exchange is about money, but not all of it.
And understanding the value drivers on both sides of the equation, can help you gain mental flexibility leading to more productive negotiations, and more satisfied employees.
It also serves to strip much of the emotion away, by objectifying the discussion. Remember that as long as the emotional brain (the limbic brain) is engaged, which it is at the beginning of most discussions about comp, the rational brain (prefrontal cortex) is disengaged. So easing their emotions, making them feel safe, validating them, and focusing them on an objective analysis of value exchange is critical to hosting constructive compensation discussions.
BambooHR
Let’s take a look at some of the leading drivers of employee value. Understanding these will give you a framework to diagnose perception misalignment during crucial conversations about comp.
Review…..
All of these, and probably more, impact an employee's value to the organization, and impact an employee’s perception of their own value.
Often when an employee comes seeking a compensation adjustment, they feel out of alignment, but may have a hard time identifying or articulating the origin of that misalignment.
This is where you can act as a consultant, and using these value drivers, help both them and the organization diagnose alignment issues, identify hidden value, and land in a mutually agreeable appreciation of the employees value.
Sometimes you’ll end up helping an employee realize that the discrepancy between their perceived value and compensated value is a perception problem. But sometimes the perception problem is with the organization.
This can sometimes be due to role constraints. If the organization isn’t currently capitalizing on some key competencies of the employee, then that employee may feel under compensated, but the organization will feel that the compensation is aligned with the employees contribution of value.
At this point, having identified the origin of the misalignment, you can host and facilitate a constructive conversation about how to get the maximum value from the employees potential.
Sometimes the organization just won’t ascribe the same amount of value to one of these things as the employee does. But being able to have an honest, open, and analytical discussion about the actual value one of these things has on the organization can turn what feels like a personal affront (“you don’t value me”) into a more logical, objective analysis that doesn’t harm the relationship.
Focusing on the employee value drivers, and not a general statements of value can remove a lot of the emotion from the discussion, and help lead to more constructive ends.
It helps focus the employee on "actual value”, or “value delivered" to the organization, instead of “perceived value”.
Understanding that, can help guide both the employee and the manager. It could be the employee wants to start asking for more responsibility, or new assignments, causing them to stretch, and deliver more value to the organization, so they can demonstrate “value delivered” to justify the compensation adjustment they are seeking.
But that is an entirely different conversation than “you’re not paying me enough”.
But you have to deconstruct that statement into the value drivers to get there.
BambooHR
Let’s now look at the value drivers for the organization. Clearly understanding each of these, and being able to adequately articulate them, gives you substantial influence in compensation discussions.
Review…..
This is where we have to escape from the functional fixedness of money as the only motivator for employment.
HR needs to be able to excite and engage a candidate around the mission, the higher cause. People love to belong to something larger than themselves. And if you’ve hired right, you’ve carefully selected people who naturally resonate with your mission, and who inherently want to stay with your company, even if it means tolerating less pay, because there’s other ways their work provides meaning and fulfillment to them.
HR needs to be proficient at not only the extrinsic motivators, but leveraging intrinsic motivators as well.
Small start ups can often hire people at below market rates, because they offer unique things that the employee values, like belonging to a higher cause, being part of a disruptive market force, or being part of building something new.
These motivators are value, and the greater your ability to articulate that value, the more you will be able to draw on them as levers in a compensation discussion.
The biggest dilemma, is just stepping out of the traditional view that compensation is only about pay. It's not about pay, it's about value exchange.
Remember that most of the time when people are looking for a job, it's not because of the compensation, but rather because they're not getting along with her boss. But as soon as they start looking elsewhere, the lead priority is pay. That tells you that people value relationships at work, more than pay. So don’t hesitate to communicate the value of the work experience and how the people in your organization make that worth staying around for.
Obviously, we shouldn’t avoid bringing people up to their fair market value, and paying people what they’re worth. So we need to use these tools carefully. But the reality is that sometimes you don’t have the budget, and you need to get creative.
Being honest and open with the employee, and helping focus them on some of the intangible, but very real benefits of their job can help buy you time to bring them up to par with the rest of the market.
PayScale
PayScale
Why alignment matters
Comp plans vary from org to org
I’ve created dozens of comp plans – like snowflakes, no two have been alike. Depends on:
Size, Industry, Style/Culture of Organization (flat? Hierarchical?)
Business Goals
Comp plan should support business goals
Alignment shows you’re in tune with org needs
Win Execs over by showing that you know what matters to them and that you want to help the org succeed by putting $ where it’ll create the most impact and alignment with what they’re trying to accomplish
You’ll need to know:
What’s on the business agenda? ((FOR EXAMPLE…))
Growth –
multiple schedules, multiple levels of positions
Doing more with less –
finely controlled ranges, ROI of base pay
BambooHR
Learning to recognize when employees begin to feel out of alignment with compensation can help you be proactive, and can go a long way towards building a positive culture, hosting crucial conversations, and keeping employees engaged.
Drop in engagement - Employees feeling out of alignment will often disengage with their work. They won’t volunteer for new projects, take on new tasks, or put as much into the tasks they have as they usually do.
Drops in performance - Employees feeling underpaid will suddenly start producing less. Sometimes this stems from employees feeling like they’re “owed” something, and should therefore contribute less. Sometimes it’s simply that they’re disengaging, and that drop in passion is leading to less work produced.
Distancing - This one is about culture. As an employee begins to feel undervalued, or underpaid, they often end up disengaging from the culture. They may take part less in company activities. They don’t want to be emotionally engaged, in fact, they are trying to be emotionally disengaged. That often shows up in very tangible, recognizable (even if unintentional) ways.
Sudden increase in negativity - Often an employee will begin to be seen having negative conversations, or making negative comments. It’s a natural emotional reaction, and a way for them to ease the cognitive dissonance caused by value misalignment. In short, it’s the “sour grapes” syndrome. They want to convince themselves (and others) that where they are working isn’t a good place to work.
PayScale
Some organization leaders are hesitant to do a market assessment when they’re unable to give out increases. I would argue that it is almost more important to arm yourself with the knowledge of your market position when you don’t have readily available funds. As the saying goes, knowledge is power – and having the knowledge of where you stand gives you the power to address issues before they become a problem.Many of the organizations I work with are already paying fairly to the market. When we start their projects, they admit that they haven’t looked at the market in a long time, thinking that if they don’t look, they won’t find something they don’t want to see. The fact is, assuming folks were in good standing in 2009, they’re probably not too too far behind now. Some things have shifted, sure, but it’s better to know by how much so you can be prepared to answer questions and communicate your position appropriately to your employees. Once your employees have a sense that they’re underpaid, even paying at the 90th percentile for the next 10 years won’t make them change their minds. And, if you haven’t been able to afford increases in a while, your employees will feel underpaid whether they are or not.Practically speaking, if you have positions that are paid low relative to the market, target these for increases as soon as you do have funds available. Consider non-monetary rewards as a means for retention of employees in your hot jobs.
PayScale
Leaders don’t want to be told what to do -
typically leaders are leaders b/c they lead. While they vary in style, generally they’re in the habit of telling vs being told.
Leaders can be distrustful of change –
Change, especially from HR, traditionally has meant more hoops, more paperwork, more expense without incoming $
Leaders are decision-makers –
Give them options & choices, and they’ll select the appropriate path forward for the org
Many leaders have access to information –
Their peers are leaders at other organizations. Often they’re already talking about these things with their peers.
What matters to your leaders?
Ultimately, you know what will work best for your leaders. The key is to put yourself in their shoes and think about *what* and *how* they want information about comp.
PayScale
Talking points: heard someone refer the way that managers feel about the comp convo with EE to how parents feel about having the birds & bees conversation with their kids. It gets real, and it’s really uncomfortable.
PayScale
PayScale
Managers are there to help you solve the puzzle…
- also, eyes and ears of the org -- first alert system to something may be awry.
- take ownership for decisions
- speak with Ees with confidence of knowing comp decisions are sound, etc…
PayScale
PayScale
Know what to listen *for* (behavior & words) – absences, etc
Self Reflect – Values-Driven Dialogue begins internally, and internal awareness forms
the background to a Values-Driven Dialogue.
Listen Actively – Each party commits to being present and seeking to understand the
other party.
Communicate Assertively –Active listening is paired with assertive communication,
where each party commits to being honest, direct, and respectful of both themselves and
the other party.
Agree & Act –Values-Driven Dialogue results in shared understanding and action that is
agreed upon by both parties.
PayScale
PayScale
PayScale
Mykkah
PayScale
PayScale
PayScale
Scenario A
Thank you for all your contributions this past year
Your position is gaining in market value
You are below last year’s competitive range
Last year you earned an increase of 3%, which was the organizational average
I’m going to give you a bump of X% OR a one time bonus of Y%, which is above this year’s organizational average increase
Scenario B
Thank you for your contributions this past year
Your position is gaining in market value, however we don’t feel that your skill set is current to what we’re seeing for similar positions in the market
You are currently below range, but I think that’s fair given your current skillset.
Last year you earned an increase of 2%.
I’m giving you a small increase this year of Z%. In order to earn a larger increase next year, I’d like to see….
Let’s check in in another quarter to see how you’re progressing – so we can keep you on track for next year.
PayScale
PayScale
BambooHR
It’s a table where HR belongs, even though often they struggle to get there. Compensation is one of the primary instruments you can use to earn that seat and influence the organization proactively. It’s a great first-step to moving into a more strategic position in your organization.
Employers don’t remember what the market rate is, especially if their hiring slow. Keep them updated, be a consultant.
Keep your eye on the prize: Don’t do it just to say you have a reward & recognition program because you think you should. Think about what you’re really going to do and how it’s truly going to help your people and your company. Are you bought in?