How to Handle Compensation Disputes

As a business owner, there’s a good chance you’ll encounter compensation disputes at some point. It’s only natural that your employees will want to maximize their salary, especially your top performers. How do you handle compensation disputes and keep the peace?


The Common Reaction

It’s normal for employers to be caught off guard or even annoyed with this type of situation. Often it hits you out of the blue, and it’s difficult to immediately formulate a response because there are so many variables. If you acquiesce and increase an employee’s salary, it can trickle down and impact your business in numerous ways. The same is true for denying the request.

As Karen Dillon, author of HBR Guide to Office Politics puts it, “As a manager, you’re starting with an impressionist painting of how people are paid and whether it’s fair. Also, it’s rare that giving the raise is entirely up to you — and there are a hundred things you have to account for. With a decision like this, there are always ripple effects.”


Hear Them Out

Before entering into any sort of negotiation, hear the precise reasoning behind the dispute. Of course you’ll be more receptive to listening to a linchpin employee with years of experience over a new hire with minimal influence. But it’s important to gather as much information as possible. Never shut the idea down right away because this can drive a wedge between you and your entire team.


Consider Key Factors

From there, you’ll want to perform some considerable research. Look at current market conditions to determine how your employee’s salary compares with individuals in similar positions. Next, check the projected salary for the next three to five years.

Assess what the employee’s overall performance and dedication level have been like during their time with your company. Have they consistently exceeded expectations, or have they merely been so-so?

Finally, you must consider whether or not increasing their salary is even a realistic notion. Would doing so take a huge chunk out of your profit margin? Or would it merely be a tiny divot?


Weigh Your Options

At this point, you should have a pretty good idea whether your employee’s dispute is valid. After examining your company’s financials, you’ll also know if it’s economically feasible. Base your decision on this information.


Resolving Compensation Disputes

If your employee has sound rationale and it’s feasible, negotiate to find a number that both parties are happy with. Otherwise, reject their request. If you choose the latter, do it with respect and tact. Explain your logic rather than simply saying, “no.” You may also want to give feedback on what they can do to potentially earn a raise in the future.

Compensation disputes are never fun and can potentially cause a rift between you and your workforce. Taking the right approach should enable you to come up with a reasonable solution that makes sense for both parties.

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