“I Don’t Like My Increase!”

3 business owner tips on how to deliver base pay messages

By now, your company has likely completed its merit cycle, and the responsibility of delivering the merit increase to your employees falls on your shoulders. These communication tips can serve as your guide to help employees understand the factors and rationale behind the merit increases which may include the employees’ performance, their pay competitiveness to market, market movement, the company budget, and other factors.

“I Don’t Like My Increase!”

Here are the three tips:

Tip #1- Communicating average to low increases:

Once a decision is made by you as manager and at least validated by your next level manager, be sure to stick to your conviction. Decisions for smaller increases for employees who are not deserving of anything more should expect this reaction.

Pay increase messages can stir employee emotions – up or down. But for the downside group, remember your company’s pay increase framework such as performance, overall contributions and how the employee is currently paid. These should be the minimum of the factors for deciding on a lower-than-average increase.

I used to instruct managers to say something along these lines:

“This increase represents a decision by the company that you are deserving of an increase this year, and even though you are paid well to begin with, I know we can help you to improve in areas of your performance which may result in even better and higher increases in the future!”

We would encourage our managers to use this messaging as a springboard for future counseling sessions.

Tip #2 The “No Increase” Conversation

Sometimes it is not warranted to give an increase to an employee. If performance needs significant improvement, or if an employee is paid near the top of the range with modest contributions, pay funding is better reserved for higher pay increases to top performing employees. This action should also apply to bonus decisions.

And here is how the conversation should go:

“You know this time of year employees are receiving communications about their pay. I wanted to tell you that this year you will not be receiving an increase. We have come to this decision based on how you well you’re paid today. I can also say your pay is competitive based on your overall contributions as we discussed in your performance discussion last month. However, I am open to discuss with you how you can improve your performance to take advantage of increases in the future. Let’s set a specific day and time for that session”.

The big tip here is not to be defensive, not using words such as “sorry, “unfortunately”, “it hurts me to say”, and “I wish it could be better news”.

Be straightforward, direct, come to the point and offer guidance. The person may not walk away happy but if they are truthful to themselves, and the company they work for, they just might take advantage of your support and help leading to a positive step towards improvement.

I always recommend pay discussions as a lead-in to more productive counseling and coaching sessions.

Tip #3 The “Above Average, but Less Than Expected Increase” Conversation

Businesses may occasionally have tighter merit budgets in certain years which may result in communication challenges to most, even high-performing employees who may be accustomed to receiving higher pay increases in the past.

Factors behind this could be your company’s cash flow, a large investment expense such as a merger, etc. Your bonus payout discussions may occur more often in this scenario as bonus payouts are more strongly tied to company financial performance than merit increase budgets.

A conversation to your top performing employees should go like this: “Your contributions this past year were terrific, as they have been in the past. Keep up the great work! As you know, we have shared that our company has [name the financial challenge, e.g., “made a significant investment in X”] which has resulted in a slightly lower merit budget this year than in the past. Given the company’s current challenge, I am very pleased to provide you with a X% increase, which is well above our average increase this year.”

It is critical to use this time to better understand what about the employee’s job is most important to them, such as flexibility, additional training, or visibility. In addition, take this time to really connect with your employee about what really matters to him/her. You can extend an invitation by stating “I want to recognize you in ways in addition to base pay. Let’s set a time to talk about things that are most meaningful to you and your career.”

In addition to the above talking points, if the market also had smaller merit budgets, it can be helpful to share this with your employee to ensure she is being paid fairly and competitively. You can follow this to your employee this way: “Your increase and our merit budget were still in step with the market movement.” If your company did a competitive market assessment, and your employee’s pay is competitive, you can share “I want to let you know that we assessed your pay, and you are still being paid competitively based on your performance.”

With careful review of your pay decision criteria framework and a customized focus on each of your employees’ unique development and job satisfaction needs, what would otherwise potentially be an emotional meeting could now be a platform for discussing your employee’s further performance enhancement and career engagement.

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