Conversations surrounding compensation between managers and employees can feel nerve-wracking for everyone involved. Managers could feel overwhelmed and uneasy about the potential questions they might have to answer. Preparation is the key to combating this apprehension. 

In addition to budgeting, planning for compensation reviews should include directions for managers to navigate challenging conversations. Organizations should develop guidelines that align with the company's compensation structure and stay true to its compensation strategy. 

Let’s say a Senior Software Engineer asks their manager for a higher salary due to inflation; they might be upset that they didn’t get a raise or that their raise wasn’t big enough. For the manager to confidently answer their question, they should be comfortable with the factors that went into that employee’s compensation review. 

Let’s look at a few of those factors:

Compensation Philosophy

First, the leader should understand the company’s compensation philosophy and how the company is utilizing the compensation ranges. In other words, is the employee’s compensation within the competitive range, or are they already above the competitive range for their job and location? 

In all cases, involving the leader in job leveling (i.e., during the recruiting process) and compensation reviews would give them an idea of a reasonable base salary for the employee’s role, and the transparency of the compensation lifecycle process facilitates the conversation.

Performance Reviews

Are they consistent top performers who exceed expectations? Involving leaders in periodic performance reviews is essential to distributing the budget among leaders during compensation reviews. Sometimes, the employee may be below market while being a top performer. In that case, explaining how market adjustments are a component of compensation reviews will make this conversation easier. 

Understanding the compensation philosophy and structure becomes even more important if the employee’s compensation is above the market-based competitive salary range. In such cases, feeling confident in the market analysis that supports the company’s decisions is the driving force of the conversation. 

Compensation Components

Lastly, knowing the different compensation components (e.g., stock options) may also benefit the conversation. If the employee’s base salary is above the competitive range and their performance doesn’t consistently exceed expectations, they might not receive an increase. Leveraging stock options (or other equity) in this scenario would benefit the company and the employee, aiding employee retention. 

The Results

The entire compensation review process can be stressful for planners, reviewers, and employees. However, if a company’s preparation is comprehensive (e.g., includes various data points like the latest market compensation data and performance review results), then each step facilitates making good compensation decisions for the business. Incorporating transparency related to the process can ultimately result in compensation conversations that build trust between employees, managers, and the company. 

About Kamsa

Kamsa's hybrid approach to compensation management (technology + consultative) empowers Human Resources and Finance teams to plan and budget salary and equity reviews effectively. We provide reliable, global market data that equip leaders to make holistic + informed compensation decisions.