Unpleasant manager task #52: Year end compensation updates

How not to talk to your engineers about money

Disclaimer: I am not an HR person or a compensation specialist. As with all of my posts, please take everything that I publish with a grain of salt and remember that my writing reflects personal opinion. When in doubt, consult HR and your employer’s compensation policy.

I don’t think I’ve ever met a manager who enjoys planning or communicating end of year compensation updates. It’s fiddly, boring, and sometimes quite stressful.

That’s too bad, though, because money is really important.

Today’s post opens with a story about a leader who appeared to forget this. I’ll follow that with a list of common pitfalls for comp planners and communicators paired with suggestions for what to do instead.

Story time!

When I was a junior engineer I worked for a company that sent out one of those massive employee surveys every year. I don’t remember much about it except for this one question around compensation. I honestly wouldn’t remember that, either, if not for the leader of my org who would make a big deal over our answers to it each year.

It was always the same. We’d take the survey and then get herded into a slightly-too-small room to review the results several weeks later. Eventually the leader would get to The Question. It went something like this:

“Rate the following statement on a range of 1 to 5: I feel that I am adequately compensated in my role.”

We would, predictably, score fairly low in the range. This would drive the leader crazy.

“Every year!” He would crow. “Every year you guys misunderstand the question! It’s not your fault, though, they should have worded it better.”

They had not asked, he would explain, whether we thought we were paid enough. They meant to ask whether we were being paid appropriately with respect to our performance in our roles. He would then share a plot of comp buckets against performance and show how we were all right on track. If you scored a 1 (1 being top performer) in your review then you would get the top award available to your role and level and so on.

Never mind the water cooler talk that we were under compensated relative to the market. Our leader had locked onto one piece of the compensation puzzle - “we tied it to performance! we use the same process across the whole company!” - while ignoring the rest.

Several years later I have some sympathy for how he could come to say something like this but all I could think at the time was that he’d lost it.

Comp planning is hard and boring

What was he thinking?

I don’t know. I never asked. If I were to guess, though, part of it would have gone something like this: comp planning is hard and he’d spent weeks trying to figure out everyone’s numbers with the budget he’d been given and here we all were crapping on his efforts in the employee survey¹.

Compensation planning is hard. It’s also really boring. If you have enough people then you end up looking at a lot of numbers in spreadsheets and those numbers all kind of blur together. Larger companies have seemingly endless steps and you get stuck doing a lot of fiddly work over and over.

There’s also very little thanks involved. You may spend weeks lining the numbers up with performance ratings while making responsible use of the budget but it’s unlikely that anyone will reach out to you afterward and thank you for all that effort. I don’t think most performance review processes even take comp planning into consideration so you really are unlikely to get any feedback, positive or negative, unless you really screw things up.

All these complaints are valid; comp planning is hard, boring, and largely thankless. The leader from my story was still wrong, though. He had become so focused on the process and his experience with that process that he’d missed the whole point: money; money and how people think and feel about money. No one had misunderstood the question except, possibly, him.

Traps to avoid and what to do instead

So what should you, a compensation planner and/or communicator, do? “Don’t berate your people for how they answered the employee survey” is a good start, certainly, but what else? I was happy as a junior engineer to roll my eyes from the safety of the back row but I didn’t have a clue as to how he should have handled things differently.

I do now.

Here is a list of traps we should avoid as leaders talking about money and what to do instead:

Trap #1: Loss of empathy. The year end compensation process is long and the numbers may naturally start to lose meaning for you. I will say it again, though: money is very, very, very important to each of your employees. They have waited for the results of comp planning for what feels like an eternity. They spent that time wondering if they will be able to realize their financial goals for this year, if you truly value them, if they can afford to keep working for you, and if they would be better served by looking around. This is where their mind is at when you sit down in a borrowed office together and you push that little sheet of paper across the table to them, face down. Each number is a distinct step in someone’s financial journey. Remember that both when you finalize your decisions and when you communicate them.

Trap #2: Not understanding the numbers you communicate. This is particularly common if you work in an org where comp is communicated to employees by someone other than the person who finalized the numbers. You might, for example, manage a team and be tasked with delivering comp updates to them that were determined by your own manager or even your manager’s manager. I think this is a lousy setup because it makes you responsible for communicating something that you didn’t have direct influence over. If this is you, make sure that you block out time with the person who planned comp this year to understand each and every decision in detail. This helps you to handle your people’s questions as well as spot potential issues that the comp planner may have missed.

Trap #3: Assuming that “followed the process” is the same as “good”. “Your compensation was determined in accordance with company policy, we followed all the steps” is not enough. You need to look at the numbers and ask yourself whether they actually make sense. Every comp process has its flaws. You may bump into one of those flaws at some point so you need to pay close attention and listen to your gut when it tells you that something looks off.

Trap #4: Shutting down dissent. If you deliver a comp update to your employee and they protest, don’t just blindly shoot them down. Hopefully the process really is well put together and pegged to performance but even then you still need to take complaints seriously. Get curious; unless the comp decision feels very obvious, aim to learn more. What had they expected? Why? What are their concerns? Take note, manage expectations (“these numbers are final but I want to make sure I address your questions, so I will circle back with you”), and then investigate with the help of HR. Even if nothing changes, you and your report now have a clear understanding of how their compensation history came to be and why.

Trap #5: Assuming that people won’t talk. I have always lived and worked in the US. When I entered the workforce I was told never to discuss my compensation with anyone other than my manager. That’s not the case everywhere else, though. I remember there was a lot of drama at one of my previous employers when we discovered that an offshore team had no such cultural stigma toward discussing money and there were now Problems. That’s not just overseas, though. How people talk about money is changing in the US, too. There are also a whole bunch of excellent resources out there like levels.fyi that provide transparency into pay at larger companies. Expect that at least some people will talk to each other about their numbers at some point.

Trap #6: Planting surprises. You already know that surprises are bad at performance review time. They’re even worse at comp time. If you’ve ever seen a third of your teammates leave after bonus season, surprise probably played a role in it all. What constitutes a surprise, though? It’s not just the basics like make sure people know whether or not bonuses are a thing at your company (some people just assume that they are!). Understanding your people’s expectations in general is key. You also need think about future you this time next year. Did someone get a larger than usual bump because this was a special year in some non-reproducible way? Explain that so they don’t expect the same kind of numbers next year. It feels scary, but “this was a special year because <x>” is an important thing to say right now.

Closing thoughts

At the end of the day the biggest trap for comp planners and communicators I’d like to highlight is apathy. Don’t let the long and winding process override your common sense. Each and every one of the numbers in that spreadsheet is very, very important to someone on your team. Muster that last bit of oomph left over from performance review season to give each number the care it deserves.

And then take a vacation someplace that doesn’t allow spreadsheets.

1. If compensation is Unpleasant Manager Task #52 then reading out the employee survey results is something like #68.