Conversations about Pay: Are You Playing Offense or Defense?

Is your pay competitive to the market?

If you can answer that question confidently, you’re in the minority. A recent study by PayScale, reported in the Harvard Business Review, revealed that many employees are uncertain about whether they’re being paid fairly. In fact, nearly two-thirds of the employees surveyed believed that they were underpaid, despite actually being paid at fair market rates.

Employee perceptions matter. When employees think they’re paid below market, they’re less likely to be satisfied and more likely to think about leaving.

When it comes to employee pay, clear communication is critical. Conversations about pay in the workplace are changing. It’s no longer taboo to talk about pay—employees are more empowered, Millennials aren’t afraid to ask, and the competition for talent in Silicon Valley means that more people want to know how their pay compares to market rates.

Conversations about pay can be a sensitive topic, but they’re a reality. If you’re an employer or in HR, you have two options: you can either play defense, or you can play offense.

If you’re not proactive about discussing pay with your employees, you’re playing defense. I’ve seen this “non-strategy” time and again as I’ve consulted with clients. Employers on defense don’t have a clear compensation plan. They don’t have a well-defined pay methodology. They may not know how each job position compares to market averages. And they may not have a good strategy for matching roles, responsibilities, and contribution levels with pay, bonuses, and other incentives.

If you don’t have a clear compensation plan, you won’t likely have good answers for employees in those inevitable conversations about pay. Clarity and transparency are critical in assuring employees that they’re being compensated fairly and are a valued part of the organization.

That’s what a good offense is all about. It takes some effort and planning to determine your position relative to the market and your strategy with pay and rewards, but that effort is essential for employee engagement and satisfaction. With a clear understanding of the market and your compensation strategy, you’ll be in a much better position to discuss compensation with your employees openly and honestly.

Employers on offense are able and willing to talk to employees about pay and job levels, market rates, current business goals, and perks and benefits (e.g., non-monetary rewards; professional development opportunities) that may bridge the difference between pay and the market average.

When you’re confident about discussing these issues with employees, you’re in a much better position to attract and retain your talent. Knowing the market, having a plan for pay, and regularly engaging your employees with their thoughts about pay and reward opportunities will go a long way in building trust, transparency, and a more engaged workforce.

Clifford Stephan founder and principal consultant for OneCompensation has shaped and implemented compensation strategies for Fortune 100 and other emerging companies in some of the fastest growing industries.