How to handle compensation conversations without overpromising or underpromising

Let’s talk money. The third installment of our difficult topics to talk about with our teams and some of the most important, because when it comes to retaining talent, when it comes to driving engagement motivation on your team, well, it’s a job, so people want to get paid. And they want to be getting paid more over time. So how you handle this is so critically important. I cannot understate that. It is not a whatever conversation. It’s not something to not think about.

It’s not something that, you know, to not plan. It is something that you’ve got to be thinking about. Because the biggest challenge that I see folks make, and I know I said this as I introduced these different episodes, the biggest challenge is creating an expectation that you cannot sustain over time, whether you’re a business owner, corporate leader, anywhere. If you create an expectation that you can’t sustain, someone feels like something’s been taken from them, and then they’re out the door.

I’m Leah Garvin, and this is the New Manager Playbook podcast, where I’m on a mission to make managing your team the easiest part of your job. And talking about money, this is not easy, especially right now in do more with less land, where everyone has less money to be giving out to folks. Maybe not in every industry, but I think all of us across the board are having to be a lot more conscious around spend, a lot more conscious around, you know, the amount of payrolls taken up, a lot more conscious around bonuses and raises and everything like that.

And so this came up so much at the end of the year that I had to do a whole episode about it, because I saw a lot of folks handling it in a way where I was like, so glad that I’m on this conversation so that we can course correct. And some of the biggest, biggest challenges that I have seen with compensation are also go with last week’s episode, with not having some of these hard conversations, not having given the feedback.

And then you’re faced with, should I give someone a raise or a bonus when they weren’t quite delivering? But that person didn’t know they weren’t delivering. And so you’re in this situation where, you know, you’re like, well, I can’t reward someone that didn’t hit the mark on these things. And the question is, well, did they even know that? What was that conversation like? Did they know that it affected their bonus and raise? How did that conversation go?

And more often than not, those conversations did not happen. So now you have a really hard moment of you’re thinking, am I supposed to give more when I have not seen the expectation met? And this is a really delicate situation. I am hugely in favor of paying people at the top of a range, of being generous with compensation, with being a place people want to work for because they feel like, hey, I have a lot of opportunity here.

There’s a lot of upside for me. And I also feel like we’ve still got to be delivering a high quality of work to get that. Those things aren’t mutually exclusive. And when folks haven’t gotten the feedback and their performance is mediocre, and then they’re saying like, where’s my big bonus? I don’t understand that piece. And I’m not in favor of that. And there’s a clip that’s been circulating around my Instagram feed recently that was from Mad Men.

And it’s a clip from when I think early, early seasons where Peggy’s saying, you never say thank you, you never appreciate me. And Don Draper goes, that’s what the money’s for. And it’s like, that’s why you have a job. When I worked in corporate, when that show came out, I was like, oh my god, he’s a monster. Now working with leaders on the other side of that, with the business owners having to evaluate these things. I’m like, there’s some truth to that.

Money is a way of saying thank you. There’s a lot of other ways. We want to be giving folks stretch projects and growth opportunities and training and visibility. And there’s a lot of ways to show recognition. But money is reinforcing behavior that we want to see more of. So the next big mistake that I see is folks giving a bonus, giving a raise when there are significant gaps in performance. And I’m going to tell you right now, I don’t know anybody out there that will do a better job and improve something when they were just told through the signal of money that everything was great.

Because why would you get a bonus that’s extra that’s implied if you have not done extra? You would assume, oh, well then what I did was great. I was rewarded. So we’re sending mixed messages here. Now for a lot of clients, again, I think we want to be generous and rewarding folks. And I love that. So in that situation, I would strongly encourage you to decouple performance conversations from conversations around compensation. Because then it’s a lot easier to have those and they’re not about the same thing.

But if you’re having a performance review and you’re saying, hey, there are some big gaps we’ve got to close and I’m really worried about this. And like here, what’s the action plan? And then the next day they get a bonus. They’re like, I guess that really wasn’t a challenge. It’s just human nature. So I think having those conversations at separate times can be really critical so that you can reinforce that. Especially if you have something like a guaranteed bonus, like you do a profit share where someone is going to get a certain amount anyway, but there were some gaps.

Separating those two conversations is going to be very, very important so that the person doesn’t think like, I guess that wasn’t a challenge. The next thing is around thinking through long-term. And this is what I do with my business owners that are in the Ops Playbook program, right? Is we map out everything from priorities to expectations to working norms to decisions to performance. And in the performance conversation, we look at what is a sustainable amount we can be increasing salaries and be offering bonuses.

And what is something that we can do, not this year when everything’s great, but next year, the year after, and figure out that whole runway of growth, both in roles and levels and titles and seniority and scope, and then on the money side. And the reason we map this out is because I see so many leaders come to me and they say, I gave these big bonuses last year, but I can’t give that again. Look at the economy.

Your team, if you gave someone a $10,000 bonus last year, and this year you’re giving them a $2,000 bonus, and they busted their butts and they did a great job, they are going to say, what the hell happened? I’m getting ripped off here. It’s not fair. And they’re probably going to be thinking, I don’t know if I want to stay here anymore. So when you give someone something and you cannot match that the following year, it takes a special kind of person to look at the economic factors and go, wow, I’m just really appreciative of a job.

And I really, like, that’s not everybody. A lot of people are going to go, I got ripped off. Someone’s taking something from me. The business owner, they want to take all the money home. They want to go on vacation at my expense. They are going to feel cheated and they are going to do probably lesser quality work next year because they think, well, what’s the point? Or maybe look for another job. Just calling it, okay, like, this is real talk here.

Not everybody. Maybe not what you would have done in a job. But that is what I’m seeing and hearing. And frankly, I kind of felt that way when I was at Google. One year I got a 7% raise. The next year I got a 3%. But my performance rating was higher. I was like, this is bogus. What’s this about? You know? Like, kind of feels like you are getting ripped off. Like, let’s just call it. So your team, likely most people on it are not thinking about, oh, my gosh, yeah, we have tariffs and we have this to think about.

And then the cost of goods has gone up. That’s just like, they’re not, they don’t have to think about that. That’s what, because they’re not the business owner. That’s not their problem. Maybe some people on your team are thinking about it. So we’ve got to create something that’s sustainable so that it’s something that we can honor. And if we’ve created something that is not sustainable, then we have to create a narrative around, okay, well, how are we thinking about this and how are we evolving and how it’s changed?

And that’s what I spent a lot of December working on with folks is, what is that narrative? How are we creating a story that evolves and builds and isn’t BS and is completely in integrity and makes sense and feels right that your team member can hear and understand, okay, I’m not getting ripped off. This is the way they were thinking about it and structuring it. And maybe I had a promotion last year and now this is, you know, me at this level for a couple of years now.

That’s what I mean about the narrative. You can’t go into those conversations without thinking about it because on the other side, someone’s like, whoa, I’m out of here. I’m getting ripped off. And we also want to gaslight people. I had a manager that would run compensation conversations in corporate where we’d go through it and you’d have like a letter and they would say what your raise and your bonus and different stuff was. And they’d start every conversation with like this, I really want to thank you.

And it’s a heartfelt thank you. And the first year they did it, I was like, oh, that’s kind of nice when my bonus was high or my raise was high. But then when it was like the next year after I had done, you know, on paper more work and then my raise was lower because of like whatever the economy, I thought it was such BS. Like you’re giving me the same speech when I got less money.

Like this is crap, honestly. And I think what I encourage you to think about is how can you show genuine appreciation and also recognize where we’re at with things. And one way that if I was in that person’s shoes, I might have done that would be to say, hey, this is a weird year with a lot of the broader things in the company of change, the way they calculate that. And I am so appreciative for all of your work.

And I think that, you know, really comes through in the performance evaluation. And I’m doing everything I can to get you back to that number because I know it’s, it feels kind of odd like when the number went down because of these external factors. And just know that I’m committed to that. What if she said that instead of repeating, copy, paste the speech from the previous year when I got half the raise? Less than half, right?

Seven and three. I mean, that would have been so much better. And so that’s again why this episode is about communication because this is the nuanced communication that your chat script can’t feed you. The empathy, the understanding of like, gosh, how would I feel in this person’s shoes? The thinking about, well, what was that person at last year? Where are we at? Like, what were the others kind of, what’s the broader context? The things that you know as a human because you’re there every day.

That’s what you got to bring in the conversation. So it’s about thinking through what is your narrative around compensation? What is your plan? If you’re in corporate and you don’t have a lot of levers, it’s not, it’s not about saying, hey, it’s all out of my control. Like, sorry. And it’s also not about giving some gaslighting thank you thing when it’s like, I also know you don’t have control over. It’s like, wait, what? It’s about having a human conversation, connecting with someone at a human level and talking about what’s going on, what the realities are, how we’re working to grow that.

Another piece is, hey, if bonuses are flat or raises are flat or lower, what about talking about these are other ways in which I’m really trying to create value for you in this team. So I want to really work next year to give visibility opportunities because in corporate, the more people that know about you, the better that bodes for you. Or, you know, really being a leader is an important thing. So let’s get you, let’s look at building you into a manager and having that because that’s going to be another path for, you know, accumulating a larger potential raise.

Like, what about that conversation? So these are things I have seen just go so wrong when it comes to having conversations about compensation, having conversations around bonuses, whether it’s creating something that’s unsustainable or trying to give hard feedback and then it goes in one ear out the other because you were also adjusting compensation. So that goes back to last week, have the feedback conversation first and really making sure you have a human, authentic conversation around compensation and where it’s at.

It’s hard to talk about money. I get it. There’s a lot that, you know, I think sometimes we over communicate about it, especially in small businesses. Our team members don’t understand what it costs to run a business, how, like, there’s so, so, so many costs associated with that come out of top line revenue. You know, that’s a more nuanced conversation. We can have one-on-one if that’s something that you’re struggling with, really what metrics to communicate because that can get a little bit sticky, but when it comes to pay, just general philosophy is we want to create something sustainable so it doesn’t feel like something’s being taken away and if the ties have turned, what is the story, what is the narrative that’s authentic, that makes sense, where someone feels like there’s still value here?

And the value doesn’t always have to be in dollars, okay? So it can be in visibility, in growth, in projects, in scope, in whatever. It can be, but think about it first because think about if you were on the receiving end of what felt like you did a great job and you’re still getting everything slashed, like, that doesn’t motivate you. Like, let’s just be honest, right? So think about these things and I assure you it’s going to go so much better so that you’re not feeling stuck, you’re not feeling that you’ve promised something that you can’t sustain, or whatever these pitfalls happen that I talked about.

See you next time.