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I recently started to manage an already existing small team of 20 members. After the performance review, I slowly came to realize that the whole team discusses everything about pay and compensations. So when I have to give high percentage payrise for a critical resource, everybody starts asking for more pay.

I have requested the employees not to discuss compensations but that does not work. I cannot give everybody the same payrise despite of their performance and at the same time don't want to mean they are not doing good for the requested increase.

Any way to deal a team like this?

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    I think this is part of the HR's job. – Lester Nubla Feb 10 '14 at 6:57
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  • I've worked at lots of companies, and have never run into a case where employees where discussing salaries openly. Is this in the US, or elsewhere? – tcrosley Feb 10 '14 at 20:24
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    Discussing salaries openly between employees is usually and advantage to the employees and a disadvantage to the employer. We as employees are really only doing ourselves a disservice not to discuss this openly. – Bjarke Freund-Hansen Feb 11 '14 at 13:42
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    Your employees are very wise. In terms of game theory, they are merely being rational. You should respect their desire to have as much information as they can acquire. Just be honest with them and very transparent about your evaluations and decisions. Their info sharing forces you to be objective so you can defend choices. As long as you can do that, then if the employees are unhappy, it cannot be because of you. – ely Feb 11 '14 at 18:11
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I faced a similar situation among my employees and I handled it by speaking one-on-one to the folks who were unhappy that someone else had been given a big raise. The wording was not like this, but the points I got across to them were:

  • someone else's increase only matters if I had told you that you deserve a big increase but we can't afford it. I have not told you that.
  • the specifics of someone else's increase are a little bit private, but surely you've noticed that [she learned 3 new languages this year, or she sold the XYZ project, or she's leading a team of 4 people now, or she's the only one who knows ABC and we cannot lose her to another firm].
  • if you focus on increasing your value to this firm I assure you I will increase your compensation. We can have a meeting to discuss specific things the company needs and you can choose which ones to start to learn. When you know those things, or have those accomplishments, you will get an increase. We can even establish in advance what the increase will be if that's what you need to go learn a new thing.

(Left unsaid in that first bullet is your increase was smaller because you didn't make yourself as valuable to us as that person. Feel free to repeat "the reason your increase is smaller than you wanted is not because we don't have the money to pay people what they are worth." It might take a few rewordings for the aha moment, to get an increase I must increase my value to the firm. That is the whole point of the meeting, to cause them to understand this fact.)

In a separate all-hands meeting I reminded people that pay is only part of each person's compensation (some had flexible hours, some were getting paid to go on training courses to increase their value, some had to do work others disliked) and that focusing only on the dollars others were getting would just make them unhappy. A little discretion is generally wise, I told them, and then I stopped talking to my people about discussing compensation. After explaining once why it's not a good idea, I did not try to forbid it or even mention whether it was a good idea, ever again. They are adults and it's their choice.

(Of course I still discussed their compensation with them as appropriate. This is about them discussing it with each other.)

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    What if the employee believes you are incorrectly assigning value to the qualities of the other worker? That is, I think your first premise is incorrect. Some else's increase matters to me, not necessarily because of anything about my own performance, but because it provides me with valuable information about how managers and senior leaders in the firm choose to translate worker properties into compensation. Upon learning how they choose to do that, I may because upset that managers are very bad at how to calculate my worth. – ely Feb 11 '14 at 21:24
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    For example, I once faced a situation where I was asked, in a huge time crunch emergency, to work over time to fix a series of mistakes that another worker had made. We always shared info, and at the end of the year I learned that worker was given a larger raise than me on top of already having a higher base salary. According to my bosses, I had clearly demonstrated that my work value was critically higher than the other person, very specifically. This allowed me to learn that the company valued tenure more than actual job performance -- a valuable piece of info in terms of my future with them – ely Feb 11 '14 at 21:27
  • @EMS no doubt that is valuable information for the employee. But I don't see how that affects my answer. Assuming the reasons for the raise are "I value what she did more than I value what you did" then communicating that clearly and correctly is the right thing to do. Some employees may think (or even say) "but I value what I did more, and I think you should too!" and that's a super useful conversation for us to have. I might change my mind; the employee might decide to go look for a job that values different things, either way it is likely to lead somewhere good for us both. – Kate Gregory Feb 11 '14 at 21:49
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First, let me disagree with some of my fellow answerers: I would not openly declare "you shall not speak about compensation with each other". People will talk anyways, and during this time when most of your team is pissed off at management (read: you), making declarations about what they can and cannot do will only inflame an already tense situation.

After that, be open and honest. Most people on your team will be adults with years of experience in their careers. They know that your hands are tied, and they know how things work. "Bob, you've been doing a great job, but I just don't have the budget to get you what you deserve." "Alice, you've been doing a good job, but you're already at the upper end of our pay scale, but you've not yet done enough to get a promotion. Here's what you can work on." And so on.

For now, I would bring it up during your 1:1's with people. "Yes, Tom got a big raise this year, because he knows XYZ and nobody else does" or "because he was underpaid more than everyone else.".

In general, people understand that not everyone makes the same amount. They'll be fine with this inequality as long as it is fair. Since your team communicates their compensation, your job will be making sure your team understands why compensation is the way it is, and address perceived unfairness.

Which is of course far easier if your compensation is actually fair...

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Make each one in the team feel content about what they are getting.

I suggest you have one-on-one meeting with each of your employees and tell them that openly discussing compensations and perks will not be tolerated. Also, explain why you cant give the same hike to each one of them. One of the best things to do in these cases is to make your employees feel comfortable with what they get. This is more of an interpersonal skill where you explain to each one the reason for the hike that they are getting. You can even mention what they could have done better to improve their hike. Thereby providing them the reason for not getting a better hike.

If your employees come back with comparisons among their salaries, you'll have to transfer the ownership of the issue to the HR(assuming you have one).

PS: Have data points while you reason out the hikes. Data points should include things like the quality of the work done on specific tasks, the shortcomings in specific areas, references to jobs done well etc.
Just making a statement in the air will leave the employee more dissatisfied.

EDIT: Since some countries might have employee rights which allow employees to discuss compensations, be sure that you go through the legal rights before you talk to your team about not discussing the compensation. (Thanks for inputs from thursdaysgeek)

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  • This is good advice, but I would be careful to speak only in terms of that particular employee's compensation. I don't think it's appropriate to discuss a co-worker's compensation with the employee, even in general terms. If the employee attempts to steer the conversation in that direction, that provides the opportunity to drive home the point that compensation is an individual topic, not a group one. – Roger Feb 10 '14 at 15:42
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    In the US, employees have a legal right to discuss pay among themselves. There are exceptions, but don't start forbidding them until you know you really can. – thursdaysgeek Feb 10 '14 at 16:36
  • @Roger valid point. But I never mentioned about discussing someone else's compensations. One should never do that. The manager should discuss things which are related to that employee and not of others. – Ricketyship Feb 10 '14 at 17:29
  • @thursdaysgeek yes. Valid. But never hurts to talk about the reason why one has been given the hike he/she has been given. (one-to-one talk between the manager and the employee) – Ricketyship Feb 11 '14 at 4:39
  • @Unsung it was a good answer, except for the possibly illegal part. Change that part about forbidding them to speak among themselves, or add something to indicate that it is legal in your circumstance, and I'll remove my downvote. – thursdaysgeek Feb 11 '14 at 16:39
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I have requested the employees not to discuss compensations but that does not work. I cannot give everybody the same payrise despite of their performance and at the same time don't want to mean they are not doing good for the requested increase.

I don't that you will be able to ever stop that. So, it may be a futile effort, and you will just breed some level animosity among your staff - i.e. YOU have something to HIDE.

I believe it is also illegal to stop employees from discussing compensation among themselves. Do you really want that hanging over your head as well?

What I think you need to do is sit down your team collectively and individually, and tell them what exactly warrants a better raise. There need to be clear, achievable metrics, and that if you meet or exceed them, that will warrant a bigger raise. Then, if Joe comes to you and wonders why Sally got a bigger raise, you can point to hard facts - Sally had higher customer satisfaction scores, she had fixed more bugs in our product, etc. - and that if you want a bigger raise, you need to achieve the same level of accomplishments. Most reasonable people will understand this. In other words, stop assuming that you're staff are not adults.

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It's natural for people to compare and be unhappy when things are not equal. No matter how much you explain and coerce, you'll still end up with a demotivated employee if he sees he's being unfairly treated (however reasonable you think it is). Being paid less than his colleagues will not motivate him to step up.

Don't pay employees based on performance, Money is a terrible motivator. It's short lived (their lifestyles adjust and the raise is long forgotten). As you have noticed, it often back fires when the short term motivation of one employee results in the long term de-motivation of others. Worse still, it replaces the intrinsic motivation of doing a good job.

Pay everyone the market rate for the role they are doing. Make sure that you are totally up-to-date with the job market and what market rate is. Pay everyone the same rate for the same role. Expect good performance from everyone, when you don't get it coach and encourage rather than bribe and punish.

This is of course not easy to change in an existing team. It is a cultural change that will be jarring to start with, but it is never too late to change. Bring everyone up to the right level in their next pay reviews (bring them forward if possible). Start looking straight away at what can motivate your team instead of purely financial reward. I've seen company trips, social events and parties used to good effect.

I disagree that average pay yields average performance. Fair pay makes people forget about what's in it for them and get on with doing a good job.

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    I think this is pretty terrible advice to give about an existing team. I agree that raising pay based on performance is a terrible motivator. Paying people less then they need or feel like they deserve, because it's 'market rate' or 'everybody in your position is paid that much', however, is an exquisite de-motivator. Make people feel they're paid the average and they will work the average. – CMW Feb 12 '14 at 9:33
  • I disagree. Changing management behaviour and policy is far better than trying to manipulate employees. If people are paid a fair rate for their role, they will not feel hard done by. Only if you nurture a culture where performance is rewarded by pay they will feel they need more. – badbod99 Feb 12 '14 at 10:01
  • In that case I think you're missing the point which is that a salary adjustment like you suggest would only result in, say, some people getting a 1% raise, other getting a 15% raise, which is exactly what the situation is right now. Maybe all but one are paid above market rate, that one employee gets a 12% raise to match market rate, now everybody else requests a 12% raise of their own. Voilà, current situation re-created. – CMW Feb 12 '14 at 10:20
  • That guy was underpaid. You adjust his salary because he was underpaid and that's it. When others ask why Dave got a 12% raise, you tell them he was underpaid. When they compared pay, they will all have the same. Maybe they are disgruntled for a few days, but it will pass. The end result is fair pay and going elsewhere won't see them paid much more (because pay is at or above market rate). – badbod99 Feb 12 '14 at 10:24
  • Comparing pay seems to have lead to the problem in the first place. I'm not sure I follow your vision of a sudden change in everybody's behaviour, solely because you decided everybody gets paid the same. You might eventually get there but changing the mentality of a team of 20 within an even bigger company that might work like this as a whole will take you a long time and very probably cost you more than one team member. – CMW Feb 12 '14 at 10:29

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