Compensation Conversations: 8 Simple Steps

The holidays and related festivities have concluded. It is the time for white sales, workouts, and resolutions. AND…it is the time of year for salary and performance conversations!

Let’s make this experience great for you and your employees. I recommend a simple 8-step checklist to set you and your employee up for a transparent, healthy conversation.


Step 1: Gather Competitive Information

Make sure you have the data you need – relevant and up-to-date competitive compensation data and other helpful information. Also, make sure you know your company’s complete rewards package. The base salary data out on the internet is just data. There needs to be perspective added to the conversation. Some data out there on the internet is completely and utterly unreliable. One company may pay a higher base salary but offer horrible insurance or no 401(k) contributions. Your HR leader can help you determine how base salaries are part of the entire mix of rewards and opportunities.

Step 2: Build Confidence

Your employee wants to believe in themselves and their ability to achieve their career goals. Ensure you know your employees’ career goals before discussing their compensation and performance. With this information, you can build a direct link of how their performance and new salary fit on their timeline to achieve their career goals. From your perspective, identify elements of their performance that help and those that may impede their plans. Your employee may have compensation goals to support their career and family plans. You may set what is realistic with your thoughts, and you should discuss these thoughts. Again, you are part of your employees’ career journey. Building their confidence may require sharing your perspective on the limits to achieving their goal in their current job, their current level of performance, or their timeline.

Step 3: Be Consistent

Every manager and employee expects fair, consistent, and compliant decisions. Build or buy the tools to make this easy. Salary ranges are helpful only if you have a solid job structure and core, well-written job descriptions for your foundation. Audit your decisions, be mindful of your biases, and stay within the salary increase guidelines. Connect with your HR partner to contrast your thoughts and recommendations to your company’s philosophy and the decisions made by other leaders.

Step 4: Show Concern

The compensation and performance conversation needs to focus on the future more than the past. Before the meeting, review the career paths the company has in place that may support your employee’s career goals. With this information, you can share your perspective on how the employee’s performance can shape their plans to achieve goals. Perhaps your employee believes their career will blossom in your company, yet you see a gap in what the company needs versus what the employee can offer. You may need to share that unless this company changes direction or grows faster, you may need to help your employee set realistic limits on their plans. You may need to help your employee with exposure versus salary or job growth. Your goal is not to hold onto someone, just to keep them forever. Your goal is to show concern and help shape their paths to their future when they are with you, even when your company may grow slower than your employee.

Step 5: Connect It All

Establishing a connection between the employees’ jobs, performance expectations, incentives, and the organization’s overarching goals is essential to ensure that every contribution is evident and valued. Bring job descriptions, your goals with your employee’s goals, and the latest financial reports. Aligning people’s expectations and rewards with the overall strategy will help create a purposeful environment that encourages motivation and productivity. Moreover, it will help build a sense of oneness and belonging among employees as they will understand their role in the company’s success. Connecting individual efforts to company achievements has proven to be effective in fostering a collaborative work culture where everyone is committed to achieving the same objectives. Aligning people’s expectations and rewards with the overall strategy is, therefore, key for any company that wishes to succeed.

Step 6: Instill Control

Most business plans begin with a gap or SWOT analysis followed by an action plan. The compensation and performance conversation is an excellent time for the same conversation. This meeting is a perfect opportunity to shape the future and strengthen the employee’s perspective of having control of their future. While feedback is clear on performance witnessed and demonstrated, and leaders and management decide compensation, you can empower your employee to shape themselves and their environments by asking more questions. Ask your employee to share thoughts about what they need or can do to improve and move forward. Solicit their views about the working environment and what has worked and should shift to bring about better results. Employees, all adults, aim to shape their futures. Help them to do just that.

Step 7: Communicate and Be Transparent

While the employee feels that your feedback is helpful and your advice for their career is valued, they want to know why their performance rating or salary is where it is and possibly lower than their expectations. Therefore, be ready to communicate and share it all. Be truthful and direct. Be clear and simplify your message so they can appreciate your thought process and what the company and you offer. At times, you may find that your employee is a great employee and ‘exceeds expectations, yet you may need to share that you will only justify a higher-level job once the company grows or demands increase. While the employee does a fantastic job, they may be paid higher in the salary range, but you may hold promotions or create new, higher-level jobs for a time. If this is true, explain. Always remember that honesty is the best policy.

Step 8: Motivate Curiosity

Finally, this part of the conversation brings it all together. Recap all that you both discussed, and share the highlights and thoughts that brought about new perspectives. In addition, affirm that the decisions are what they are and that you’re looking forward to a great year. Then, when the conversation feels finalized, bring out this last piece. Ask your employee if they have explored and tested their thoughts about their future. Maybe you know someone in your past that you’d like your employee to meet to ping their curiosity for their future. Suggest they check your LinkedIn to identify a colleague to meet with and that you would happily connect with them. Ask them to think about what questions they’d ask someone successful and who fulfilled a similar career aspiration. Suggest they meet with another colleague in the company for an exploratory interview. Ask them to consider doing this before your development conversations to follow soon on a future date. Stoke their curiosity to explore their future and related actions to achieve them. Be ‘that manager’ – the one they will remember forever and have a smile on their hearts when they reflect.

I hope every leader remembers that every interaction has an eternal reaction. These compensation and performance conversations are not to be dreaded. In fact, they are a fantastic opportunity to help every employee remember that your role is a leader, partner, and coach at this time to their incredible life’s journey.

About the Author: Laura Morgan

As a founder and owner of MorganHR, Inc., Laura Morgan has been helping organizations to identify and solve their business problems through the use of innovative HR programs and technology for more than 30 years. Known as a hands-on, people-first HR leader, Laura specializes in the design and implementation of compensation programs as well as programs that support excellence in the areas of performance management, equity, wellness, and more.