The last financial year has remained tough for many employers. Even though team members have continued to dig deep, overcome adversity, and show innovation, regrettably in many cases there is just not the budget to reward employees the way the organisation would like to. 

Many leaders find the pay review challenging, even when there is seemingly good news to share. Some team members do not understand the process and believe the leader has the ability to decide and allocate whatever they like. Clearly, it does not work that way and the organisation has to consider many variables and industrial requirements before landing on any decision. The first of these must be their obligations to comply with required increases outlined in the underpinning award, agreement or contract of employment. 

Beyond this requirement, employers are juggling other factors such as performance, trying to retain talent in a skills shortage, bridging the gender pay gap, and rewarding employees for additional work that has been instrumental to business success. There is no doubt that assigning a percentage number or dollar amount can be awkward and some leaders feel personally responsibility when that figure is not representative of the employee’s value or contribution. 

Irrespective of how confident the leader feels, there is no question that the salary review discussion is historically ‘make or break’ time, cited by HR as one of the most important conversations a leader will conduct. 

Tips to mastering the remuneration review discussion

Research suggests that employers lack confidence in their leaders’ ability to hold conversations that do not ‘shift the blame’ or break employee engagement. The following are 8 key tips to support leaders in having positive and productive conversations – even when there is no good news to share.

1.  Create a team culture of ‘no surprises’

Leaders are generally privy to the financials of the business and will understand the likelihood of pay increases. It can be tempting to hold this information until the eleventh hour, but authentic leaders start the conversation with team members early to balance expectations.

2.  Remove the blame game

No pay review discussion should ever start with “If it was up to me…”. A leader is empowered to have the conversation on behalf of the business and for all intents and purposes, in that discussion they are the business. The desire to blame the organisation usually comes from the fear of breaking the relationship with the employee. However workers do not need a ‘don’t blame the messenger’ speech. They deserve honesty and ownership.

3.  If you fail to prepare – be prepared to fail 

Even experienced leaders need to take some time to reflect on each pay review discussion prior to meeting with the team member. It is important to reflect on:

  • How is this likely to be received?
  • What increase (if any) was provided last year?
  • What is the employee likely to expect?
  • How does the employee usually manage disappointment?
  • What questions is the employee likely to have?
  • Have I done my homework on the ‘why’ behind the decision?

Consider how you will respond to the likely questions or comments of the employee and practice saying your responses out loud or with another leader.

4.  Position and plan the conversation

Employees need context to understand the decision. If they felt like the company had the best profits ever recorded, and were then overlooked in the review process, there is likely to be some ruffled feathers. Employees benefit from understanding aspects such as:

  • How the company has performed financially
  • Constraints, hurdles, and unexpected market conditions that influenced the bottom line
  • Whether there were new competitors, changes in regulations or a drop in exporting
  • Whether there was an increase in the raw cost of a product required for production
  • How the increase compares across the board (a 2% increase may not hit the mark for some but if most of the organisation received 1% perhaps this is actually a good news story).

5.  Re-state the employee offering

Of course a pay increase is a welcome conversation, yet it is not just about the money. It is highly recommended that leaders are positioned to talk about the other ‘hooks’ of the employment offering. Pay increase conversations should also tap into the full picture. For instance, perhaps this is the time to shift the focus by casually asking the employee if they are looking forward to the upcoming conference or ask how their flexible work practices are going. 

6.  Manage behaviour

Sometimes, employees will come out swinging when the outcome is not what they think they deserve. It is common for some employees to feel they have been cheated out of what they were expecting and to demonstrate this unhappiness in the conversation. It is here that the leader needs to listen to the concern but not indulge it. Employees have an obligation to act appropriately at all times and the remuneration review is not a ‘free pass’ to behave poorly.

7.  Avoid unprofessional comments

It can be tempting for leaders to start defending the decision by going on the attack. Leaders should avoid resorting to comments such as:

  • “You are already paid higher than you should be”.
  • “There are others in the team that performed better than you so you should be grateful for 2%”.
  • “You’ve only been here a year so I’m not sure why you expect more money”.
  • “We already pay you too much given your productivity”.

There are no winners from comments such as these and it is much more productive to keep the conversation professional and on track.

8. Reinforce the employee value

This is a tricky one as telling employees how valuable they are and that the business has thrived with their sales contribution and then advising that there is no pay rise is confusing at best. It can leave the employee feeling used and undervalued. It is critical to balance the disappointment with the context of the broader business climate and performance of the organisation and try to disassociate the result from the employee’s value.

The decision is about business

Sometimes leaders take it personally when they need to deliver bad news but pay reviews are always about business and are never personal. There is no doubt that it feels wonderful to provide healthy pay increases to team members but in tough business conditions these conversations are few and far between. Leaders should not feel bad about the pay outcome as long as they have entered the process and discussion with fairness, authenticity and transparency. 

The pay review discussion can feel like there are ‘winners and losers’ but ultimately the employee experience is about a lot more than the pay check. When the leader allows team members to put ‘all their eggs in one basket’ and hang their happiness on one aspect of their employment it is bound to end poorly. Leaders are encouraged to identify the engagement hooks for individual team members, and work with them in partnership to create connections that go much deeper than money.

Further information

For assistance with your workplace matters, Members of Ai Group can contact us or call our Workplace Advice Line on 1300 55 66 77 for further information. Employers can assess 'How to Coduct an Effective Review Discussion' and 'How to Conduct a Difficult Remuneration Review Discussion' for more detailed information and support. 

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Georgina Pacor

Georgina is Senior HR Content Editor – Publications at Ai Group. She is an accomplished Human Resource professional with over 25 years of generalist and leadership experience in a broad range of industries including financial services, tourism, travel, government and agriculture. She has successfully advised and partnered with senior leaders to implement people and performance initiatives that align to business strategy. Georgina is committed to utilising her experience to create resources that educate and engage and is passionate about supporting members to optimise an inclusive workforce culture that drives performance.