Why Compensation Conversations Matter and How to Have Them
Let’s face it: for many leaders, having a candid conversation about pay ranks right up there with getting a root canal. It’s uncomfortable, emotional, and often avoided. But as inflation stretches household budgets and wage growth cools, employees are paying more attention to their compensation.
And if you’re not having that conversation clearly and regularly, you’re risking engagement, retention, and performance.
Employees Are Talking About Pay — Are You?
A recent Pew Research Center survey of over 5,000 employees reveals some telling insights:
- 50% are extremely or very satisfied with their pay
- 38% are somewhat satisfied
- 12% are not satisfied
That might seem like good news — until you dig deeper:
- 76% of employees say they regularly go “above and beyond”
- Among those only somewhat or not satisfied, two-thirds believe their pay doesn’t reflect their contributions
- 69% of that group say they struggle to pay their bills
This isn’t just an entry-level concern. These responses came from employees across roles and income levels. The bottom line: employees care deeply about fair compensation, and they’re looking to leadership for clarity and honesty.
Why Avoiding the Conversation Backfires
Avoiding compensation discussions doesn’t make them go away. In fact, it creates space for frustration, speculation, and distrust. Today’s workforce has more access to pay data than ever. Whether it's public salary ranges on job postings, employees will have questions. The worst thing a manager can do is ignore them.
A Framework for Better Compensation Conversations
There’s no perfect script, but there is a better way to approach pay discussions. Start here:
1. Be Transparent About the Decision and the "Why" Behind It
Did the employee not receive an increase due to underperformance? Be clear about that. Lay out what needs to change, when the next review will happen, and what success looks like.
For high performers already earning at or above market, acknowledge their contributions and explain how pay decisions align with company policy, market data, or internal equity. You may not be able to give a big bump but you can offer clarity and appreciation.
2. Use Market Data Strategically
In a remote and geographically dispersed workforce, understanding local compensation trends is essential. Pay for an accounting role in NYC may be 36.5% higher than the national average. In Mobile, AL, it may be 14% lower.
CHECK OUT OUR SALARY GUIDE TO LEARN MORE.
Leaders must use market data to justify decisions and stay competitive — especially in sales and revenue-driving roles.
Salary compression, caused when new hires earn more than long-standing employees, is a growing challenge. If you're managing through it, transparency and proactive conversations become even more critical.
3. Listen Actively and Thoughtfully
You might not be able to meet every compensation expectation, but you can listen. Employees may reveal key blockers to performance: lack of training, tools, or clarity. They may express interest in a promotion path. These are opportunities for development and trust-building.
Don’t turn a pay conversation into a one-sided announcement. Make it a dialogue that supports employee growth and engagement.
Lead the Conversation
Compensation isn’t just about numbers, it’s about relationships. Leaders who can navigate these conversations with clarity and confidence earn more than short-term buy-in. They build trust, drive performance, and retain top talent.
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