Have a Compensation Review with Employees: Tips + Agenda

Discussing pay with your employees is not an easy job, but necessary. When done correctly, a salary review could be a great opportunity to compensate employees fairly, increase employee retention, and improve workforce satisfaction. However, if done incorrectly, they could lead to feelings of dissatisfaction and employee demotivation.

Most managers and employees find compensation review meetings difficult and uncomfortable due to the sensitivity of these discussions. According to a past PayScale survey, only 17% of executives are “very confident” in their managers’ ability to have compensation conversations with their team members.

However, the silver lining here is, that while the conversations seem arduous and nerve-wracking, you can succeed by being adequately prepared.  

In this article, we will explore the guiding principles of successful pay review meetings and how to conduct them.

What is a salary review? 

Salary review is the process of assessing an employee’s salary and benefits against their performance, experience, and sometimes, the prevailing economic climate to ascertain its fairness or suitability. The goal of pay reviews is to determine and ensure that employees are fairly and accurately compensated.

According to a survey by Pew Research Centre, the majority of the people (63%)  who quit their jobs in 2021 did so because of low pay. Similarly, a study by Flexjobs on the top five reasons people quit their jobs revealed that the second main reason is low salary - only topped by toxic work culture. 

This implies that fair and adequate compensation is crucial, and given our earlier analysis, it is clear that pay review meetings are an effective way to achieve this.

On the other hand, having a stagnant compensation policy without consideration for the employee’s contribution to the organization could leave employees feeling stuck, underappreciated, and eager to quit.

Why should we have a compensation review meeting?

Having a candid compensation talk with employees has more benefits than you think. We shall explore some below.

• Increase motivation and productivity

Compensation is a strong incentive for better productivity. If employees know that their efforts will be adequately rewarded, they are likely to become more motivated and apply themselves at work.

Also, if employees are well-compensated, they feel like their work and contribution are valued by the organization and could be driven to achieve more.

• Foster job satisfaction and trust in management

A study that surveyed 13,000+ employees, including senior managers responsible for employment relations and financial management, found that performance-related compensation was positively associated with organizational commitment and job satisfaction.

What makes this finding even more impressive is that profit-related pay did not have the same effect. This is evidence that employees appreciate compensation that reflects their efforts and performance more.

• Deepen manager-employee mutual understanding

Compensation review meetings are a chance to hash out issues around employees’ expectations of compensation and the state of the organization’s compensation policy and budget.

Having an honest conversation on these three things can help both parties better understand one another and concessions where necessary.

• Improve two-way accountability

Accountability goes both ways in compensation review meetings. The employee is required to speak to their performance and sometimes make a case for why they deserve a raise. The manager, on the other hand, is expected to carefully defend their decision regarding the employee’s compensation.

Pay reviews are most effective when held periodically. While the organization often determines this, it is important to create opportunities for employees to request pay reviews and present their case for why they think they deserve it.

Notwithstanding all that has been stated, the benefits of a compensation review meeting can only be enjoyed if the process is done right. We will look at how this can be achieved in the next section.

Read next: 50+ Employee Productivity Stats & Facts in 2024

How to conduct a salary review meeting with employees 

The most important guiding principles of salary reviews are fairness and transparency. These qualities, in the salary review process, must be both substantive and evidential. This means managers must, beyond being fair and transparent, ensure that their employees can see that they are. 

This is crucial because not every outcome of salary reviews is favorable to employees. However, when employees are convinced of the credibility of the process, accepting the outcome without damaging their relationship with the manager and organization is easier. 

So, how can you translate these abstract principles into real action? Simply do the following.

You should never go into a salary review meeting without adequate preparation. In addition to giving you a grasp of what to expect and emphasize and how to structure the conversation, preparation helps you to build confidence. 

A good way to begin is to figure out what you want to achieve in the meeting. Then, make a checklist of everything you need to consider and discuss ahead of the meeting. After this, you can proceed to research the items on your checklist.

As you can imagine, this gives you a long list of things to consider, but as a general meeting guide, you need to have a clear understanding of the following before your meeting:

• Terms of employment contract

• Organization’s policy on salary review

• Organization’s budget

• The pay range for the role in the market and among competitors

• Employee’s performance and value to the team

• Employee’s preferred conversation approach

• Reasonableness of employee’s demands (if the pay review was initiated by them)

Researching and considering each of these carefully will help you determine the best strategy for your compensation review meeting, as well as what the likely outcome would be. 

You should also carefully consider the employee and how they would receive the conversation. Reflecting on this will guide you on how you communicate with understanding and empathy.

Once you are settled on these, map out the flow of the conversation, write out the key talking points in proper order, and make a note of what you want to highlight during the meeting. 

Once you are reasonably satisfied with your preparation, send a meeting request to the employee.

The invite should provide an explanation of what the meeting is about, its objectives, what the employee can expect, and what is expected of them if any. 

It is important that you clarify the context of the meeting and provide every relevant information at your disposal; so that the employee can prepare professionally and emotionally for the meeting.

The body of your invitation could read something like this:

If the outcome of the compensation review has been predetermined, inform the employee of the decision in a proper manner. 

This is especially important if you acknowledge the employee’s good performance but are unable to provide a commensurate raise or if their performance is not satisfactory.

In the former case, your emphasis during the meeting should be, in addition to showing appreciation, issues like the organization’s current financial position or other non-monetary incentives. 

In the case of the latter, spend more time listening to the reasons for their underperformance. Also, communicate your goals and expectations for them against the next performance review cycle. 

Tailoring the conversation to the outcomes provides employees clarity on what they are doing right or wrong and how that affects the outcome of the compensation review. This is potent in shaping their perception of the process as fair and transparent.

This is one of the most important steps in salary review meetings because it presents you with the chance to emphasize the fairness and transparency of the process - and this could be difficult.

According to a study by Payscale that surveyed 160,060 workers, 77% of the participants said that they did not believe their employer’s rationale for denying a raise. To avoid this, the conversation here should underscore the changes (if any) to the employee’s benefits package and how it was arrived at. Essentially, your emphasis should be:

• The amount of the new salary (and other benefits)

• The main reasons for the change

• When the new package is effective

• Current and/or additional responsibilities

• When another review can be expected

This part of the conversation will be easier if you are convinced of the fairness of the outcome presented to the employee. So, be sure that the decision isn’t made lightly.

Give the employee the opportunity to share their thoughts and seek clarification on anything they are unsure or confused about in relation to the outcome of the review process.

Ask them what they think and how they feel about the change - especially if they find it satisfactory or not and why.

You must remember that the meeting is not only for you to relay your decision or comment on the employee’s performance but also to listen to them. 

The meeting should be concluded with a recap of what was discussed and the resolutions reached. You can run through the notes you made or a mental summary to make sure you are both aligned on the decisions made and the next steps. 

Be sure to document the entire review process from the preparatory stage. 

You should also take notes during the meeting and record the issues and concerns the employee has raised. This will serve as your guide for determining the next steps and further review where the employee has demanded the same.

It is important to note that not all pay review meetings are this straightforward. The employee might raise issues that must be addressed before the new benefits package is finalized. So, while you are encouraged to make your decision before going into the meeting, be flexible enough to accommodate the new issues raised and adjourn the meeting if necessary.

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What to avoid when discussing compensation?

Now that we have looked at what you should do in a compensation review meeting, let’s dive into what you shouldn’t:

• Interrupt or speak over the employee when they are articulating their points

• Discuss other workers’ compensation

• Derail conversations from the focus of the meeting

• Trivialize employee’s work in an attempt to convince them that they do not deserve a raise

• Breeze over important details. Instead, take the time to explain and encourage them to ask questions

• Become emotional. You should always stay dispassionate and objective

• Ignore the employee’s questions

• Fail to document discussions, research, and correspondence

In addition to these, never communicate without empathy. Put yourself in the employee’s shoes and remain respectful and understanding throughout the conversation.

What to talk about in a compensation review? 

While compensation reviews usually have their unique goals, the main talking points are mostly standard and could serve as a formula for successful conversation.

The main talking points are:

Acknowledge their efforts and accomplishments and how these are relevant to the success of the organization.

In a study conducted by Officevibe, 69% of employees said they would work harder if they felt their efforts were more recognized. This means that appreciating employees does not only make the outcome of the compensation review easier to accept, but it also serves as positive reinforcement, which could improve employees’ overall performance. 

The appreciation should, however, not appear routine and insincere. Identify specific parts of their work that you are impressed with and speak specifically to those. 

In line with the principle of communicating transparency and fairness, employees should never be in the dark or left to guess what the organization’s compensation philosophy is.

Make sure to explain how the company determines pay, what the established pay range and benefits for the role are, and requests for further reviews (if such a mechanism exists). This could help the employee further understand how the organization works and make sense of its philosophy.

Share the updated compensation that was arrived at at the conclusion of the salary review process. This should include the difference between the new compensation and their previous pay.

The conversation should also emphasize other employee benefits the organization offers, especially if they are connected to the updated compensation. So, talk about health insurance, pension contributions, allowances, stock options, corporate discounts, and paid vacations if the company offers them.

Also, highlight growth opportunities like departmental transfers, training and scholarships, and promotions. Even though these are not monetary, they could be useful in swaying the employee in favor of the proposed changes.

The person whose opinion matters the most in the entire review process is the employee because they are often the most affected by the outcome. So, listen to their feedback on the updated compensation and the organization’s compensation philosophy.

How do they feel about the change? Do they think it is fair or sufficient? Do they have any thoughts on the organization’s compensation philosophy? Is there anything about it they would like to change?

In addition to these, you can use the feedback conversation to find out what the employee cares about the most aside from pay. 

These talking points can be organized to form your agenda template for salary review meetings. We will show you how in the next section. 

Compensation review meeting agenda template 

A meeting agenda is an outline that shows the talking points for the meeting in the proper order that they should flow. It helps you save time when planning your meeting and will facilitate the conversation. 

Pro Tip: You can simply apply the template or alter it to your taste or in line with your organization’s standard meeting and/or salary review process. 

FAQs about a compensation review meeting

How often should you review salaries?

It is common for organizations to review salaries between six and 12 months. Some companies also have the practice where they conduct the first salary review after the employee's initial trial period.

The frequency of salary reviews is ultimately up to the organization to decide in line with the prevalent practice in its industry or government directives on compensation. However, it is advisable to hold salary reviews at least once yearly so that employees’ earnings are not too affected by inflation rates.

What factors are considered when deciding compensation?

The following factors should be considered when deciding employee compensation: 

• Employee’s performance in comparison to their peers and colleagues 

• Number of years of experience

• Employee’s growth potential

• The organization’s compensation budget

• The value of the employee within the organization and in the job market

• The prevailing salary range for the same role in the market

• Inflation and other macroeconomic considerations

The factors listed are general and not exhaustive. Individual organizations can set their parameters to suit their context.