How to Talk to Your Employees About Compensation

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Talk about compensation

How to Talk to Your Employees About Compensation

Perhaps the most uncomfortable topic to discuss between an employer and employee is that of compensation. However, it’s also among the most important, so you can’t simply ignore it and hope it goes away.

So how do you talk about compensation with your employees? We’ve laid out some basic guidelines that we hope will make things easier for both you and your employees.

Treat the conversation as a matter of great importance

We can’t stress this enough: When you talk to an employee about pay, you have to acknowledge that the conversation is important. Don’t just nod your head absentmindedly; actually listen to what the employee has to say and signal that you’ve been listening.

Don’t treat pay conversations as if they’re chores. They may feel this way at times, but know that for the employee in question, this might be a matter of putting food on the table or not. On the flipside, it could be a matter of whether that employee continues to work for you or seeks employment elsewhere. And we all know how expensive it can be to replace loyal employees.

Always be upfront about compensation

You should be transparent about your pay rates from the very beginning of the hiring process. And before you even ask, yes, you should include a salary range in a job description (here are some reasons why).

But that’s just where the conversation begins; it’s certainly not the end.

Always be transparent. If the market forecast is looking gloomy, let your employees know right away that it might be a bad time to ask for a raise. If a particular employee is overperforming constantly, be ready to reward them monetarily, and let them know as early as possible that you’re considering this.

For an employee, being in the dark about potential raises can be a huge source of stress. And remember, employers can be legally held responsible for the stress they cause their employees, intentionally or unintentionally.

Put some separation between performance reviews and discussions about pay increases

We’re not saying that job performance and pay shouldn’t be linked. Obviously, they should be. However, if you want your employee reviews to be effective (and trust us, you do), then you should make performance reviews about performance and pay conversations about pay. This makes performance reviews less stressful and compensation discussions more fruitful for both parties.

Study pay averages in your field and in your location

You should know what the average pay looks like for any of your employees. When an employee is performing above average and being paid below average, that person is going to see employment as an unfair tradeoff. Likewise, if an employee asks for an unreasonable raise, you can be ready to refute them with hard facts.

If you’re not willing to do basic research and crunch your own numbers, why would you expect your employees to give you 40 hours a week of their precious lives?

Of course, this also means you need to be willing to stay current with compensation averages. If you find out your employees are being underpaid, you should rectify that before they find out on their own and call you out on it.

Help your team members set goals

Pay conversations are great opportunities to energize your team. If you take a goal-oriented approach to discussions about compensation, you can encourage employees to tackle new challenges and get excited about company growth.

In too many companies, leadership teams will gather their employees and celebrate new company milestones and growth opportunities. Afterward, not a single person in the conversation, aside from leadership, will see any sort of pay increase. This creates a cognitive disconnect between performance and compensation.

Employees who are shown the value of their work without receiving adequate compensation are going to start to feel like company growth doesn’t matter. This is the beginning of the process that leads to lower productivity and lower job satisfaction.

Remember, morale can sour quickly, and when it does, there are financial consequences for your business or organization.

Make sure your employees understand how compensation works

We’re circling back to our first point a bit, but we want to make sure you’re having two-sided conversations with your employees. Don’t treat compensation like it’s something that gets figured out behind a mysterious curtain somewhere. Explain how compensation rates work and let your employees know what you’re doing to make sure everyone is getting their fair share. If payment and compensation are linked (as they should be), let your employees see this clearly.

Remember, it’s important that your employees know how compensation works so everyone is on the same page and no one feels like they’re being treated unfairly or taken advantage of.

Don’t discourage your employees from talking to each other about salary

This is perhaps straying off topic just a little bit, so we’ll keep this point brief. Employees should talk to each other about their salaries. This is becoming more and more culturally appropriate, and companies shouldn’t discourage it.


Conversations about compensation are never going to be easy, but that doesn’t mean they can’t be fruitful. Having regular conversations about pay is just part of having a healthy work culture. And it probably goes without saying, but healthy work cultures produce better results than unhealthy ones.