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The Importance of Separating Performance and Pay Discussions

Pay – at the end of day, it is the number one reason why most of us come to work each day. Unless you are independently wealthy, we need to earn a living in order to eat, afford our homes, cars, etc. Pay is of vital importance to us as workers, that is why discussions that involve pay are always very sensitive. In any conversation you have with your manager, (or that you as a manager have with your staff) when pay comes up, that is all you will ever hear and remember from the conversation. Trust me – your manager might call you into his/her office to tell you that you are getting a new/bigger office, an ergonomic chair and a new ipad but you are not receiving a pay increase this year. What did you hear/remember from that dialogue? If you are like most people, it is that you aren’t getting a pay increase. That is why discussions about pay need to be their own separate conversation.

SeparateSo where am I going with this? Simple – when having a discussion with an employee about their performance (review) it needs to be its own separate discussion aside from whatever pay increase they are or are not getting. I have seen far too many organizations combine the two – the manager sits down, delivers a performance review and then tells the employee about their x% increase. The problem is that all your employee heard in that conversation was what their increase was….which may or may not be in line with what they thought they were going to get. Instead of focusing on the wonderfully crafted performance review and its content, that was all washed away and the employee hones in on the pay increase…or lack thereof.

This is why in organizations I have worked at I have always worked with managers to separate the discussions. Complete the performance review process first – rate the employee’s performance against their goals and KPI’s and deliver the feedback. Have a meaningful discussion about where you see their performance and where they need to improve and/or continue to excel. Outline the path to success, provide recognition where due and close the meeting on a high note. Your employee walks away feeling respected and then begins to process the performance info (in the context of goals and objectives) that you discussed with them.

After that meeting, 1 week or 1 month later (whatever your corporate timeline is), follow up with them to discuss what their performance increase is (or isn’t.) That way, there is an opportunity to context the pay discussion outside of the content of the performance review. The pay discussion should outline how the increase (or not) was determined. It is important for employees to understand what the compensation context is and how pay was determined. Managers need to understand and be comfortable explaining things like:Pay

a) The company’s ability to pay (in relation to its overall performance)
b) Relativity to related geographical industry averages
c) The employee’s overall performance and the employee’s performance in the overall context of their peer group (this is especially critical where distribution curves apply)

Managers also need to understand (where applicable) things like compa-ratios and distribution curves if they impact the organizations’ budget and overall ability to pay. This way, the discussion is now focused on pay itself and how it was determined and not the specifics of the employee’s overall performance. It is incumbent on HR folks to provide the explanations and understandings to managers so that they can intelligently have these types of conversations with their employees. Based on the intended goals and outcomes of your performance and pay meetings, these salient points, hopefully, identify why it is critical that these conversations are separate.

What about you? What has been your experience with separating (or not) these conversations? What works? What doesn’t work? As always, I welcome your comments and feedback.

Road image courtesy of digitalart/ FreeDigitalPhotos.net

Hand and money image courtesy of creativedoxfoto/ FreeDigitalPhotos.net

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