Some people are afraid of flying. Others avoid public speaking at all costs. A major fear for many managers…salary discussions. Gearing up for a difficult discussion about salary and merit pay can be is as much fun as enduring a root canal if you’re anticipating a disappointed, frustrated or dejected employee response. Even though they made it through a less than favorable performance review, learning that they haven’t earned an expected pay raise opens the door to a new set of heightened emotions for them and you.

While there are multiple ways we show appreciation to our employees, most of us equate our salary, merit increases, and bonus payouts as the clearest indication that we are worthy of investment. Delivering negative merit news requires precision, clarity, and care. With the right words at your disposal, you’ll be able to deliver difficult news and keep an employee with potential.

Pop Quiz: When it’s time for merit dialogues with your employees, which of these methods is best? 

A.   Email…so they can “process” the info on their own.

B.   Pretend to change your name and introduce yourself as Linda from the Atlanta office.

C.   Avoid acknowledging it at all and let the number on the next paycheck deliver the news.

D.   Meet with the individual in-person or over a Teams/Zoom video call to offer and explain the situation (as HR has prepped you).

If you guessed D, then you are correct.  Avoidance and saying nothing just aren’t options. These discussions are incredible engagement impactors. Delivering disappointing news in a disappointing way to the employee only compounds the problem and brands you as an unskilled manager and uncaring human.

If your goal is clarity. and care, it’s vital to avoid approaches that are guaranteed to go south quickly. Be wary of dismissiveness, insensitivity, and minimizing the very real importance of merit increases. Moreover, avoid words that will hinder open communication and break trust. To keep your office “cred” avoid saying:

“If it was up to me, you’d be getting a bigger increase. It’s just that my hands are tied with this budget and the higher-ups are not bending.” While tempting, you have just given away all of your power and told the employee that you aren’t skilled enough to advocate for them upward. Not taking ownership for what and how you communicate bad news to your employees is a major no-no.

"Well, I know it's not what you were hoping for, but it's the best we can do given your performance. Just be grateful you're getting anything at all." Gulp. This response is completely devoid of precision, clarity, and care. Based on a response like this, your employee will move to the defensive and take you with them.  

“You are still getting paid above market value. Your current salary is still really good.” You might be missing the point with this less than helpful statement. They were anticipating an increase and didn’t get it. Share data and explain the reason why as transparently as possible.

Before the actual merit conversation: Do. Your. Homework. This means being strategic about the comp budget you were awarded and how you plan to distributed that allotted amount. You could take the path of least resistance by awarding everyone on your team the same percentage increase, but if you work in a meritocracy, there’s a greater expectation of you. Prep as you would want your leader to prep for the same conversation with you:

1. Understand how your organization determines annual merit increases. Perhaps it’s pure math, completely subjective, or a little of both. Regardless, it’s your job to know how it works and to use good judgement. This will also add to your credibility as a leader of people.

2. Have a clear understanding of the employee's performance and contributions. Where did you see them shine? Where did you see them struggle? How did their performance factor into this reward?

3. Determine a fair merit increase using relevant data and metrics to support your decision (drawing from #1 and #2). Your HR partner can offer additional guidance.

4. Discuss your plan or any concerns with your Manager and HR and gain their insights. It’s possible that they have had experiences that you would benefit from.

5. Schedule time to discuss merit. Avoid lumping it in with the performance evaluation or other agenda items, if possible. Give it the attention it deserves.

When it’s time to deliver the news, tee it up thoughtfully. Be empathetic, honest and direct: deliver the message clearly, avoiding vague or ambiguous language.

If lower performance is at play, then it shouldn’t come as a surprise to the recipient. You might say:

"I understand that you are disappointed. I want to share how I arrived at this amount, and then focus our conversation on how I can support your growth and development moving forward.”

“I’d like to explain how merit is calculated here. We factor both the budget allocation and performance against goals and objectives."

“Let’s discuss what I’d like to see and what you can do to position yourself for a greater increase next year. Know that you have my support.”

If merit is heavily weighed by budget constraints, even when performance is solid you might say:

"As you know, when the company succeeds, we share that success with our employees. Our business’ performance overall was down last year due to x, y, z. Of course, because we missed our financial targets, the merit pool offered was much smaller than anticipated. That impacted the amount of increase I am able to offer you, despite your solid performance. Although it is still early in the year, we do expect that this year will be x, y, z and are hopeful for a more substantial budget to share with our employees next year."

During your merit conversations, take the opportunity to chart a course for growth, development, and performance improvement. Learn what your team members need to feel appreciated and valued, despite budget constraints. Explore recognition beyond monetary rewards like career interests and stretch assignments. By fostering open dialogue and investing in your team's professional journey, you'll cultivate a culture of appreciation and value that transcends financial considerations.