Managers: Here’s How to Have Conversations About Pay

October 17, 2023
November 7, 2023
Rosanna Campbell
Lattice Team

If money were no object, would you still work the same job?

Like most people, you’d likely say no. However much you love or hate your job, pay is one of — if not the — most important concerns of every working person. After all, it's why we don't simply earn money or a salary — we earn a living

No wonder talking about pay is so stressful. Not just for employees, but for managers as well. 

As a manager, you’re in an unenviable position. You’re often pitted between employees and HR — your employees are relying on you to explain compensation decisions and advocate for fair treatment. HR needs you to stay on budget and defend the company’s compensation plan. 

Here, we’ll look at a number of strategies to help you feel prepared and comfortable discussing pay with your team members. 

Why are conversations about employee pay so challenging?

Discussing pay is still taboo. While pay secrecy has been declining in recent years, it remains the norm in the US private sector. In most states, it is against the law to outright prohibit employees from discussing pay, but many companies still strongly discourage it. 

Here are a few reasons why employers and employees both feel uncomfortable discussing employee salaries:

  • Power dynamics: In one study of 3,000 UK employees, 55% said they were unwilling to ask for a raise. Their reasonings included not knowing what to say (16%) and feeling too afraid to ask (12%). Whether speaking to their manager or the HR team, employees might fear that asking for a pay increase is out of line and could be faced with a negative reaction from those who keep them in a job.
  • Performance or professionalism concerns: Employees may also worry that mentioning changing salary expectations may be seen as demanding or unprofessional. They may fear that they will be seen as only being “in it for the money.” The same UK study found that, of the 55% who were unwilling to ask for a raise, 15% worried that asking for a raise would make them seem greedy. 
  • Fear of confrontation: Pay is an emotive and often very personal issue. As such, there’s always a risk of conflict. An employee may be overly demanding, a manager overly dismissive. With opaque performance expectations at the root of 14% of conflicts within organizations, there may be disagreements about performance-related pay. For example, with women earning on average just 82% of what men earn, comparisons with colleagues or perceived pay discrimination may be flashpoints for conflict. 
  • Opaque pay policies: Employees often don’t have clarity about pay structures and how they work, and many companies prefer to keep these details under wraps (although new pay transparency legislation in the US is making that more difficult). Employers might fear losing competitive advantage or creating resentment, but research shows that this lack of transparency can lead to a lack of trust.

How to Approach Conversations About Employee Compensation

If you’re worried about how to talk to employees about compensation, you’re not alone. “I've seen managers sweat bullets before compensation meetings,” said Sudhir Khatwani, director of The Money Mongers. “But here's the thing: It's all about setting a vibe of openness and trust. When broaching the topic of pay, managers should come across as confidantes, not just company representatives.”

Here are five strategies to ensure positive pay conversations. 

1. Ensure psychological safety for employees.

Even if they've instigated it, a pay conversation is likely to be very stressful for your employee. It is a topic that is loaded with emotional baggage, so it’s crucial to defuse any tension right from the start. 

As a manager, it’s up to you to create a safe environment for your team members. You need to ensure your employees feel respected, not judged. 

“Assure your employees that the conversation is confidential and there will be no ramifications for any criticisms they may bring up,” suggested Adebayo Samson, founder and CEO of educational website Academicful. “This way, they will feel safer opening up about what they want in terms of pay and where the company is falling short or getting it right.” 

What to Say

Ask open-ended questions that allow the employee to express themselves. For example:

  • "How do you feel about your current pay?"
  • "What are your thoughts on your performance over the past quarter?"

Use inclusive and non-judgmental language. For example:

  • "How can we work together to find a solution that works for you?"

2. Listen carefully to requests for raises.

When an employee comes to you to ask for a raise, they'll come armed with reasons why they believe they deserve it. They'll also likely be primed to hear "no" and ready to react. So be conscious of how you respond. 

Listen without judgment, acknowledge their reasons calmly, and be honest about the options. If you do have to say no, make the reasons clear and objective. If possible, suggest action points toward future salary increases

It's also important to consider employee retention. This conversation might be an unspoken ultimatum, as your employee may already have a better-paying job lined up. Of surveyed workers who changed jobs in 2021, 84% did so in search of better pay, according to a 2022 Owl Labs report.

Simon Bacher, cofounder of Ling, stressed the importance of taking these conversations seriously, especially with remote employees. "It’s easy for remote and tech workers to find another job, as we experienced in the Great Resignation. If the employee is a top performer, it could significantly impact your remote business operations.” 

What to Say

“Whenever I receive pay-related questions,” Bacher said, “I ask exploratory questions, such as ‘Why should the company increase your pay by 10%?’ Expect answers like they’ve found a better-paid job elsewhere, have been performing excellently, working in the company for years, or are dissatisfied with their current salary because of inflation, family, or additional workload. I can then make a sound decision based on my employee’s answer.”

3. Explain the compensation strategy.

Transparency is vital to positive pay conversations. Employees need to be clear on why they are paid as they are, and how their compensation package relates to the company’s performance management strategy. 

Explain the compensation philosophy early in the recruitment process,” advised Nellie Wartoft, CEO and founder of Tigerhall. “Be clear about how compensation is linked to performance, and what type of performance is rewarded with higher compensation. Spell out what is important to the company and how compensation links to that.”

Be ready to break down your company's compensation benchmarking process, approach to employee benefits, and total rewards strategy for them. Make the compensation strategy clear and avoid jargon. Ensure that you are able to explain your pay-for-performance strategy. If in doubt, reach out to HR for guidance. 

It’s also a good idea to stay up to date on any issues that might impact policy so you can respond to questions from employees. For example, since the pandemic, 57% of workers feel they should be paid the same whether they are home- or office-based. Yet in-office workers actually spend twice as much per month as those who work from home do, according to the Owl Labs report. 

Such issues could easily be a source of conflict in pay conversations if you need to reduce costs, so it’s important to be able to explain any decisions you have to make. 

What to Say

When explaining your compensation strategy, be sure to provide the reasoning for each aspect, and how it aligns with your compensation philosophy. Aim to consider the situation from the employee perspective, rather than simply outlining company policy. For example:

  • "We use salary bands to help give structure to our pay decisions. The compensation we offer takes into account the skill set and the level of responsibility as per our job descriptions."
  • “Let’s take a look at the current salary range for your role. You’re earning the midpoint of the pay scale here, which is in line with HR’s guidance for employees that share your [experience level/performance ratings/geographic location].”
  • “Our compensation guidelines are meant to ensure employees are being paid equitably, but sometimes that results in different salaries for the same role — the differences can account for things like merit increases, geographic location, or tenure.”

4. Facilitate negotiations between HR and employees.

As a manager, you have a dual role — advocating for your employees while also considering the company's financial situation. Nat Miletic, owner and CEO of web design company Clio Websites, emphasizes the importance of being up to date with the industry's compensation standards and being able to explain how the company stands in the industry:

“It's easier to navigate and communicate when you have market insights. It makes for a more data-driven discussion between HR and employees, and that helps employees understand how the company positions itself while remaining fair and competitive.”

At the same time, while HR can provide support and clarity in terms of policy and finances, compensation discussions and the negotiation around employees’ pay should stay between the two of you. 

“Playing middleman between HR and employees is a balancing act,” said Khatwani. “Think of it as being a translator: you're taking the corporate lingo from HR and translating it for your team, and vice versa. It's not about taking sides; it's about ensuring clarity.”

What to Say

When seeking your human resource team’s approval for an employee raise, tie the employee’s performance, career goals, and contributions to the company’s objectives, particularly profitability. Ask your employee to help you by providing proof points to justify a raise. For example:

  • “To escalate this request to HR, I’ll need your help documenting the extra work you want to be compensated for. Can you send me a list of examples by the end of this week?”
  • "Here's a list of responsibilities for the job title directly above yours. Are you doing any of these tasks already? If so, please give me a list of examples by the end of this week, as that will help me escalate this request."

5. Take fairness and equitable pay into account.

To quote HR thought leader Josh Bersin, “equitable and fair pay is among the greatest drivers of employee satisfaction.” Yet according to Gartner research, only 32% of employees believe their pay is fair, and only 34% believe it is equitable

Whether that belief is true or not, the perception of unfair pay alone can be enough to make someone leave their job. This is why it’s vital to be transparent and to take account of diversity, equity, inclusion, and belonging (DEIB) in all your compensation strategies and conversations.

Efforts to ensure transparency about pay rates aim to reduce the gender pay gap in the EU, but in the US, where pay secrecy remains widespread, that gap has barely changed in 20 years. Wider yet is the racial pay gap

Bringing openness to your pay conversations around fair and equitable pay can not only help alleviate the tension around those issues but can also actively help you reduce pay inequalities in your own business. 

“Ensuring everyone gets a fair shake isn't just ethical,” said Khatwani. “It's vital for a thriving workplace culture.”

What to Say

Ensuring fairness in pay conversations means being open to, and respectful of, employees’ perspectives and perceptions — even if you don’t agree with them. Emphasize any ways that your pay policies avoid bias. For example: 

  • "I want to assure you that your compensation is based solely on your skills, performance, and contributions."

Be honest about any areas where the company might be falling short, as your employees may well already be aware of these. For example:

  • "We are actively working to address wage gaps that may exist based on gender, race, or other factors to make sure we are paying everyone fairly."

Be open to and appreciative of feedback. For example:

  • "I encourage you to share your thoughts or concerns on this, as it helps to improve our compensation policies for everyone."

Make pay conversations easier for everyone.

It’s never easy to have compensation conversations, whichever side of the table you’re on. It’s an emotional topic — and one that many of us would prefer to avoid. But, for managers, pay conversations are as important as they are inevitable. 

To get them right, you need to have the right information at hand. You should be able to explain how compensation is calculated, and how the employee’s performance plays a role. Most of all, you must approach pay conversations with openness, empathy, trust, and respect. 

To learn more about having better conversations around pay, download our free Compensation Conversation Template.