I sparked a bit of a controversy on LinkedIn.
I challenged one of the most commonly held beliefs in compensation & benefits circles: that managers like being able to make pay decisions for their teams.
Here’s how it usually works: managers are assigned a salary increase budget, and it’s up to them to decide how it should be distributed among their team members.
But, while researching for the previous issue of this newsletter, I stumbled upon a study from Gartner that found something surprising: many managers do not like this system at all.
According to the study, ‘only 19% of managers would prefer to make pay decisions; most are either neutral (45%) or prefer not to make those decisions (36%).’
Managers might be right to be wary: personally, I believe that in the pay transparency era, compensation decisions shouldn’t be made by individual managers alone.
On discovering these statistics, then, I rushed to share them with my network… and the reactions were immediate.
A manager’s prerogative?
‘Evaluating and rewarding employee performance is simply part of every manager’s job. HR and comp & ben would be wrong to interfere in the process. It would show a lack of trust in managers, which would only exacerbate the cold war that has always existed between HR and the rest of the organisation. HR should make sure managers are properly trained on compensation issues, and then leave them to sort it out with their teams.’
These are the arguments I hear most often on this subject. But I still believe that compensation can’t be the prerogative of managers alone.
The most obvious reason? Every manager is different. Given the same budget, one manager might decide to give a substantial raise to their top performers, and nothing to the rest of their team.
…but another manager might opt to spread the budget out equally, giving everyone the same percentage increase.
These are differences which can be difficult for employees to accept today — and which will become truly dangerous for employers in the pay transparency era. Soon, every difference in treatment between employees will need to be justified by objective criteria.
I find it hard to see how any manager can have the necessary perspective to make these decisions in a way that is:
- Fair
- Aligned with the business’ internal compensation policy
- Aligned with decisions made by their colleagues
- Reflective of the value brought to the organisation by each employee
To achieve this, managers would need an overview of the entire organisation. And that’s just the start of the problem…
Managerial blues
In compensation, we’re all talking about the transition to the pay transparency era. But this is happening alongside another, more general issue. In short, the manager’s role is in crisis.
There was once a time when people dreamed of just holding the title ‘manager’. But these days, the managerial route isn’t the only progression path available. Specialised technical candidates are seen as more and more valuable, especially in tech sectors.
The manager’s role has lost some of the lustre it once held — and now comes with added duties and responsibilities.
There’s this new notion of ‘servant leadership’, where managers are expected to act in service of their subordinates. Overall, this is a positive change, which has helped to build healthier businesses with happier employees.
But for managers themselves, this concept brings new responsibilities — on top of everything they were already doing. Today, managers are judged on their ability to train, equip and support their teams.
And this has had a major impact on managers’ mental health:
- According to People Management, managers are more likely to be diagnosed with a mental health condition than any other group of employees.
- According to a study quoted in Forbes: Managers are more stressed out than both their team members and senior leadership, and 25% say they ‘often’ or ‘always’ feel burned out.
And this, in turn, is having an impact on how employees view the work of a manager: an Entrepreneur article from 2023 reported that young people increasingly are not interested in managerial roles.
Unfortunately, pay transparency will add to managers’ already heavy workloads. As new rules and regulations take effect, managers will be on the frontline, facing a barrage of questions from employees. It will be up to them to address their teams’ doubts and misunderstandings — which will require support and resources from us as comp & ben leaders.
But none of this means managers should be left in complete control of compensation decisions.
If not managers, then who?
Here’s one of the most convincing arguments I’ve heard on this subject:
‘Managers are the ones who have to explain compensation decisions to their teams… at the very least, they should be involved in making them.’
And it’s true.
I’m not suggesting that the HR department should be the sole driver of compensation decisions, leaving managers as simple messengers.
But we can (and should) provide managers with concrete suggestions for increases, along with the criteria behind them and how this aligns with the company’s compensation policy. Managers will still have the last word, but if they challenge decisions made by HR, they’ll be doing so in full possession of the facts.
And, if they accept the suggestions HR provides, they’ll have all the information they need to justify the decision to their teams.
For this to be effective and accepted by managers, we’ll need to ensure suggestions are relevant and perceived as useful rather than restrictive. In this, AI is a valuable tool. Employers can use AI to make fairer decisions, which can only be overruled by managers within strict limitations.
Early experiments in this area are encouraging: since 2019, IBM has been using an algorithm to suggest increases to managers. According to their reports, only 5% of managers end up overruling these AI-generated suggestions.
Of course, this is an ideal scenario, and it’s probably a bit too optimistic for the rest of us.
But I think that, with the right tools, we can get to a place where managers only feel the need to overrule AI suggestions around 10% of the time.
As so often during this new era, the most important thing here isn’t just to provide powerful tools, but to support people through the transition.
We must support and train managers, particularly on the issue of feedback. Crucially, performance evaluations (and feedback) must take place before compensation decisions are made.
Proper feedback is essential, and can’t be replaced by conversations about salary decisions.
This is a sensitive topic, but I believe it’s also a fascinating one. Feel free to get in touch if you have thoughts to share.
Let’s keep the conversation going
Here’s a selection of content to give you food for thought. Feel free to send me articles that you’ve found interesting on this subject!
AI’s Impact on Compensation Strategy — Gartner
The Gartner report where I found the statistics on managers’ preferences on making compensation decisions. The report also offers fascinating insights into the use of AI in the field of compensation and benefits.
Research: Becoming a Manager Doesn’t Always Feel Like a Step Up — Nishani Bourmault and Michel Anteby, Harvard Business Review
Interesting article about the current mental health crisis among managers, based on a survey of managers in the UK conducted by Capterra.
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