It’s that time of the year again. Employers are handing over salary increases to employees. As a compensation manager, this has always been my favourite time of the year. Not because I get to determine who gets what, but to see human behaviour in action. It does not matter how much you give them. What matters is how they feel. If you tune into the conversation with an open mind, you learn a lot more about your people and their perspective. Everybody is passionate about compensation, especially when it is their own. They should be. It is a tough conversation and hence management teams and HR spend a lot of time behind closed doors to figure out how to approach it. Employees, on the other hand, look at the closed door and suddenly have lot more questions. All this happens for a month. Once the new salary hits the account, the conversation dies down and management/HR breaths a sigh of relief… One more year through, next year it will be better. The story plays every year. Organisations change,  actors change, but the plot remains the same. The end remains the same, and unanswered questions still remain unanswered. 

I am a proponent of being open about an organisation’s compensation philosophy. In addition to how much they are getting paid, Employees should also know how is that determined. It does not mean that you hand over the excel file of calculations to everyone. After all, compensation information is personal and confidential and it should be respected. However, we should be open to talking about the “why” behind the salary increases. We should talk about how the organisation benchmarks its compensation with others to stay competitive, how does it differentiate based on performance, how does it ensure fairness and rewards good talent. I have been engaged in this conversation for almost a decade now - first as a Compensation Consultant, second as Compensation Head and then as an HR leader. Employees are most concerned about ‘fairness’ and ‘why’ behind your decision at a philosophy level. They understand the confidential nature of information and respect that. Every time an employee walks up to Manager or HR asking a question on compensation (about their own or about others), he or she is shown a clause in employment contract or code of conduct that states it is personal and confidential information. The threat of corrective action eliminates the conversation but not the question that started the conversation. So much for the ‘an employee is my most valuable asset’ philosophy!

There are three reasons why I think that management and HR need to be prepared for the conversation. 

1. Compensation matters

No matter what the popular wisdom on motivation says about purpose, passion, contribution and intrinsic rewards, I know for sure, based on my own experience, compensation matters. Look at your exit interview data, salary increase survey results, attrition studies. Compensation always occupies a spot in top 3. This has been true for last decade, not just this year. It is overwhelmingly clear that it is important. 

2. Employees will find answers  

Just because you do not encourage conversation does not mean it does not happen. This is a favourite coffee time conversation. Within friends, they always know. This is the worst kept secret of an organisation. It is speculative however there is intelligence behind that speculation. This is further supported by online social platforms like LinkedIn, Glassdoor, Monster, Indeed. A cursory look at these sites and you will realise that your paranoia about keeping salary information confidential is unfounded. The information on social networks is only getting better because the question is real and people trust those who are sharing. 

3. Getting behind rather than getting in the way

No one comes to work thinking: "I am going to do my worst today". People want to contribute and feel great. However, unless we take the compensation discussion ‘off the table’, it will always continue to be an irritant. Organisations need to be an enabler of this conversation rather than policing it. If employees ‘buy into’ your philosophy, you have a much better chance at other elements of your total rewards - career development, benefits, recognition, culture etc. 

If this is so important, why do organisations and HR not engage in the conversation? We will cover that in the next part of this conversation.