Pay and promotion.

Before a pay conversation, get three numbers straight: what the role is worth on the open market, what the business can afford once employer costs are added, and what you believe this person's contribution is worth. Then decide in advance whether your answer is yes, no or not yet, and prepare a clear reason for whichever it is. In the meeting, be direct, give the answer plainly, and if it is not yet, say exactly what has to change, by when, and what happens if it does.

Owners often avoid pay conversations because they worry about setting expectations they cannot meet, creating resentment with a no, or opening a negotiation they are not ready for. Avoided or badly handled, they cost the business in retention, motivation and trust.

Why does this conversation matter commercially?

People who believe they are underpaid for what they contribute tend to leave, or stay and disengage.

The following numbers are illustrative. Replacing someone earning £32,000 might mean a recruitment fee of around £5,000, then three months while a new person works up to full output — call that £4,000 of lost productivity — plus perhaps forty hours of your own time on shortlisting, interviews and induction. That is more than £10,000 before anyone counts the client relationships that walked out with them. Against that, a £1,500 rise, or a straight conversation about why not now, costs far less. Our true cost of a hire tool runs the same arithmetic on your own numbers.

Step 1: Get ahead of it

Start the conversation yourself. Put a fixed annual pay review in the calendar and tell people when it happens and what it will be based on. Then nobody has to find a way to raise the subject, and you can plan the cost into your year rather than meeting three requests in a bad month.

If someone raises it before the review, do not answer on the spot. "Good — that deserves a proper conversation. Let us sit down on Thursday" is a complete and respectful response, and it buys you the time to do the homework below.

Step 2: Do the three pieces of homework

• The market rate. Look at real, current advertisements for the same role in your area and at your size of business, not at a national average for a job title. Ten minutes of looking gives you a defensible range instead of a feeling.
• What the business can afford. Work it out on the fully loaded cost. Once employer National Insurance and pension are added, a rise costs the business meaningfully more than the number on the payslip — as a rough planning figure, add about a fifth, and ask your accountant for the exact cost on your payroll. A £2,000 rise is therefore closer to £2,400 a year of real cost, and it repeats every year afterwards.
• What the contribution is worth. What does this person produce, protect or prevent? Who would notice if they left? Look at it in both directions — some people are underpaid relative to what they carry, and some are being paid for a role they grew out of, or never grew into.

Step 3: Decide yes, no or not yet before you walk in

Know your answer and your reason before the meeting starts. Deciding in the room, under pressure, can lead to agreeing things you later resent.

Also decide your limit. If you are open to negotiating, know the number you will not go past and what you would want in return — a change in scope, a defined responsibility, a review point. If you are not open to negotiating, be ready to say that plainly.

Step 4: Run the conversation properly

Be direct and treat it as important rather than squeezing it between other items. Sit down, allow twenty minutes, and start by acknowledging that pay matters and deserves a proper answer.

Let them make their case first, because it may change your answer. Then give your answer clearly, in one sentence, before you explain it. People who are waiting for a verdict do not hear the reasoning that comes before it.

Step 5: If the answer is yes

Say why: what you have seen, what it recognises and what you expect the role to look like from here. That tells the person which behaviours produced the outcome.

Confirm the amount, the date it starts and whether anything about the role changes, then put it in writing that week.

Step 6: If the answer is no, or not yet

A no needs a specific reason: budget, market rate, performance, or the scope of the role. Vague answers are read as personal.

A not yet is only useful if it is specific: here is what needs to be different, here is how we will both know, here is the date we will look at it again, and here is what the answer will be if it happens. Write it down and send it.

Is it always about money?

Often not. Pay is the easiest thing to ask for, so it can carry other concerns — feeling unrecognised, watching someone less capable move up, having outgrown the job, or not knowing whether there is a future here. Ask a second question before you answer the first: what would need to be true for this to be a place you want to be in two years?

The motivation map is a useful frame for the answer, because different people are driven by very different things — security, recognition, autonomy, mastery, belonging. Some of those cost money and some cost attention. A rise does not fix a recognition problem.

What about promotion?

Before you promote anyone, be clear on what they will own that they do not own today, the performance expectation in the new role, and whether they are ready. A title without a change in responsibility devalues every other title in the business.

Being excellent at the work and being able to get results through other people are different skills. If you are promoting a strong technician into management, say so openly and put support around it — clear responsibilities, a defined first ninety days, and regular one-to-ones while they find their feet. Our guide to building a high-performing team covers what to put in place around them.

Should you promote to avoid a performance conversation?

No. Sometimes a person is not doing well in their current role, the conversation is unpleasant, and a sideways move dressed as a promotion looks like a way out for everybody.

It rewards the thing you want less of, shows the team how progression works here, and puts someone who is already struggling into a role with more responsibility. If performance is the issue, deal with it as performance — our guide to managing poor performance sets out how.

Pay and promotion conversations handled well show the team that you are straight with people and that standards mean something. Leadership coaching works on these conversations, often starting with the one you keep moving in your diary.