Managing Employee Expectations About Compensation: The Complete Guide

June 10, 2024
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These days, employees are more and more aware of their market value. And that’s a good thing: at Figures, we believe that everyone deserves to be paid fairly for their work. 

But sometimes, employees’ expectations about pay just aren’t realistic. And they can end up disappointed and dissatisfied when those expectations aren’t met. Down the line, this can cause problems with retention, engagement and motivation.

In this article, we’ll share our tips for effectively managing your employees’ expectations around pay, so there are no nasty surprises once compensation review season rolls around. 

7 tips to manage employee expectations about pay 

Want to better manage your employees’ compensation expectations? Here are seven tips to keep in mind. 

1. Refer back to your compensation philosophy

A company’s compensation philosophy is a formal statement of its approach to pay. It should outline your goals in terms of compensation, and why you believe in them. It should be underscored by your organisation’s culture and values. 

Ultimately, your compensation philosophy should be the basis for all decisions about pay. Having a compensation philosophy that employees can refer to (and sticking to it) essentially means there should be no surprises when it comes to compensation. 

That means if you don’t have one yet, putting a compensation philosophy together is the first step towards managing your employees’ expectations. Need some help? Check out our full guide for our tips and some inspiration from real-world companies. 

2. Conduct regular salary benchmarking

These days, employees tend to have a pretty good idea of their worth. This is partly just because employees talk to each other — sharing details about pay is much more common than it used to be. 

But there’s also a whole world of salary comparison tools, social media platforms and forums where employees can get an idea of what their peers are earning. And that’s not to mention the wave of pay transparency legislation that we’ve seen sweeping across North America and beyond, making it more and more difficult for companies to keep their pay practices secret. 

All of this is to say that if your salaries are not aligned with the market, there’s a good chance your employees will find out. And that means big problems in terms of employee attraction, retention and engagement. 

So, what’s the answer? Conduct salary benchmarking to make sure your salaries are comparable to the market. Doing this regularly shows employees that you care about paying them fairly. It can also help managers to speak confidently about pay with their teams, since every salary is backed up by real-world data. 

3. Practice transparency wherever you can 

Open communication is the cornerstone of managing employee expectations around pay. By opening up about your organisation’s compensation strategy, policy and processes, you can help employees to understand the reasoning behind any pay decisions. Even if they’re not happy with the result, they’re more likely to accept it if they can see there’s a fair and logical process behind it. 

Of course, not all companies are comfortable with 100% transparency around pay — and there’s certainly a middle ground to be found. But, with the EU pay transparency directive set to come into effect between now and 2026, many companies are going to have to become a lot more open about how they handle compensation. 

Our advice? Start preparing now so you’re ready to comply once the new rules come in. 

4. Rethink your performance evaluations 

In many organisations, employee performance plays a key part in determining who gets a raise (and who doesn’t). And this makes sense: factoring in performance is an effective way to reward top performers and motivate employees to do their best work.

However, in order to properly manage your employees’ expectations, you need to be 100% clear about how you’ll measure their performance. As much as possible, employees should understand exactly what concrete objectives they need to achieve to get a top rating. 

Also, it’s important to make sure that the performance criteria you use are objective and consistent. It should never come down to the personal opinion of a manager, as this leaves room for bias and favouritism. 

5. Think about the long-term implications of every decision 

It’s important to think about how the decisions you make now will affect your employees’ expectations for the future. 

For example, if an employee is due a big raise, you should think carefully about whether awarding it all at once is a good idea. While they might be happy with, say, a 15% increase, this also sets an unrealistic expectation for the future. For this reason, splitting a big raise into smaller increases across more than one compensation review cycle can be better for morale. 

Of course, there’s no one right way to handle situations like this one — but it is important to consider the long-term impact any decision might have. And as always, the key to managing employee expectations is effective communication.

6. Shift the focus to total rewards 

Base salary is only one part of an employee’s total compensation — yet it’s often the focus of the conversation when we talk about pay. Reframing the discussion to focus on total rewards can be a useful way of managing employee expectations. 

For example, some companies may pay at or below the market median when it comes to base pay, but make up the difference with things like benefits, equity, bonuses and perks. If you’re only discussing base salary when you talk to your employees about compensation, you’re not looking at the full picture. 

That means HR, managers and leadership should take every opportunity to focus on other compensation elements and help employees understand their pay in its full context.

7. Seek feedback from employees 

Involving employees in the conversation around compensation can help you to improve your processes and deliver a better total rewards package. After all, management and leadership don’t always have a clear understanding of employees’ views and priorities, so asking them what they truly value is key to getting compensation right. 

But seeking feedback also shows employees that compensation a two-way conversation, which helps them to feel seen. Even if you don’t implement all of their suggestions, just asking them for employees shows that you value their opinions. Over time, this can help you to build an open, trusting and positive company culture. 

Communicating before, during and after compensation reviews

As we may have mentioned once or twice, communication is crucial to managing employee expectations around pay. And your annual (or biannual) compensation review is one of the key touchpoints in the year. 

Communicating before the review 

Before the review starts, you should communicate to your employees what the process will look like, how long it will take, and (ideally) the factors you’ll take into consideration when determining increases. That way, there’ll be no major surprises when it comes to delivering the results. 

Communicating the results of the review 

Sharing the results of a compensation review with employees is usually left to managers — so it’s important to provide training that helps them to do this effectively.

The most important thing is to make sure managers understand the rationale behind every pay decision, so that they can clearly communicate this to their team members. Managers should also take care to be empathetic — especially if it’s not good news. Since conversations about compensation are sensitive, it’s best to have them face-to-face when possible. 

Communicating after the review 

Communication with employees shouldn’t stop once the compensation review is over. First, you’ll need to confirm any changes to employee compensation (i.e. raises) in writing, including details like the effective date. 

This is also the moment to seek feedback from employees and managers about the process itself. Like many things in HR, developing a fair and effective compensation review process is a long-term game — and getting feedback from your team can help you to iterate and improve it. 

The key to fair and transparent pay 

At Figures, we’re big believers that pay transparency is the way forward when it comes to managing employee expectations about pay. After all, employees are much less likely to be disappointed with a decision if they understand exactly what factors went into it. 

But before you can fully share your compensation structures and processes with your entire organisation, you need to make sure they stand up to scrutiny. And that’s where we come in. 

Using Figures, you can benchmark your salaries against real-time, accurate market data, and create a robust, scalable salary band structure in minutes. You can even use Figures to manage the entire compensation review process from start to finish, ensuring it’s smooth, effective and fair. 

Want to learn more? Book a demo to get started.

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