How to Have the PAY Discussion
There is no discussion that creates more anxiety for a business owner or manager than that of talking pay with a team member. It doesn’t need to be like that.
When you have guiding principles, and a written document, that everyone understands, the discussion simply become another business discussion. It simply, is not a big deal.
I was talking with a Kyle, a private client, last week and we got on the topic of pay, and raises.
He had previously done Performance Reviews in his business and like most business owners he hated them. He admitted that he was, in fact, months overdue in getting them done because he hated them.
He was also feeling guilty because the Performance Review was the time they discussed pay, which meant he was behind in giving raises. Then he confessed that one of the main reasons he hated Performance Reviews was the pay discussion.
Everyone was used to get a raise at their review, and he had a lot of people that didn’t warrant a raise right now.
I pointed out to Kyle that his experience with Performance Reviews and pay is the same as everyone’s. It’s a NO-WIN for both parties.
I told him the experience of my brother-in-law at Boeing who hated Performance Reviews and why the discussion of pay during Performance Reviews was a NO-WIN for both parties.
When my brother-in-law had a Performance Review and was told he did everything great and got a dollar raise, he left saying to himself, “I did everything great and I got a measly dollar.”
But, seldom would he leave being told that he did everything right because the manager knew he had to limit raises, so he had to find something that was lacking.
So he would be told that he was lacking in some area, and then the next time we saw him he complained about how he wasn’t appreciated at Boeing.
Performance Reviews are stupid to start with. Managing one’s performance in REVIEW is idiotic! Adding pay into the discussion is BEYOND IDIOTIC!
Kyle’s question was, how do you address pay in The Make-You-Happy Management System?
My answer – “Pay needs to be transparent. I don’t mean everyone needs to know everyone else’s pay. In fact discussing your pay with others in our business if forbidden.”
“What I mean by transparent is, they need to know what is taken into consideration in determining pay.”
We then talked about the pay document included in The Make-You-Happy Management System. It’s entitled, “How Pay is Determined.”
I told him this needs to be shared with every team member on their first day of employment. It will make pay transparent for that individual, and it will motivate them to continually look for ways to improve the business.
I also told him he needs to distribute the, How Pay is Determined document to his entire team right away.
How Pay is Determined has eight bullet points that spell out exactly how each person’s pay is determined. Kyle and I discussed the preamble to the document and the first bullet point.
How Pay is Determined
It is the manager’s responsibility to review the pay of each of their team members, at least, once a year (more often if the manager sees fit). Whenever the manager thinks it is necessary (s)he should review the team member’s pay with the president of the company, and make recommendations for adjustments.
This is a discussion of how pay is determined:
If you are on commission you should expect that your pay will rise and fall with your commission and that you will create your own pay raise.
While many of the issues discussed below may apply to commission positions, this statement deals primarily with salaried and hourly positions.
A number of issues are involved in determining wages at <Business Name>.
Here are a few:
- Prevailing wage – The reality is no manager, including the President of the company, sets the pay at <Business Name>. The biggest factor in setting a pay range is the market.
It is very simple. If our wages are too low, we won’t attract or keep quality employees. If our wages are too high, we won’t make money and we will be out of business.
Just because someone is here for a matter of time it doesn’t mean they automatically get a cost-of-living raise. It is very possible, in fact likely, that we currently have positions in which the job being done simply is not worth any more money to the company. At this point, regardless of how well the job is being done, a wage increase would be very small and possible nothing.
A huge problem with mature businesses is that over time their payroll can get out of line with the rest of the industry and the company can no longer be competitive (think United Airlines, Trans World Airlines, Pan American Airlines, General Motors, Ford).
When we as a company are more efficient and productive than others in our market place our team members can be at the top of the pay scale for a particular job. In fact, we can create a NEW top above what the market pays for a particular job.
This is why it is so important that you are an active participant in our continuous improvement. You are needed to insure that our MJRs service both our internal customers and clients in the most efficient and effective way possible. You need to speak up when you see an opportunity to improve a MJR.
In every Personal Development Interview you will be asked, “Since we last met, what did you find that was broken, or could be improved; and what did you do to fix, or improve it?” It is critical that you always look for ways to improve our deliverable to our clients.
The How Pay is Determined document then goes on to discuss the other seven factors in determining an individual’s pay in a Make-You-Happy Management System business.
There is no reason for a pay discussion to cause the anxiety it does. Discover how to truly take control of every part of your business in my book, “How to Control Your Business and Your Life.” It’s free for you. All I ask is your help with shipping and handling with a $2.97 fee.
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