- Pleases the employee
- Can be attributed to a need to retain the valued employee
- Permits the flexibility to continue rewarding certain individuals beyond normal limits
- Clearly communicates that range maximum control policies are not rigid
- Gives away money without being added to the semi-infinitely-compounding base pay amount
- Increases the payroll budget beyond the policy limit for the manager, so they get a bigger budget next year, too
- Foments envy among those denied the more favorable treatment (if exceptional and not universal)
- Still "compounds," in a sense, being subject to taxes and frequently affecting other remuneration entitlements based on total annual income
- Creates a much bigger cash flow "hit" on payroll funds, with a lump sum equal to an annual increase treated as a bonus, an immediate large drain on funds
- Is completely wasted if the recipient leaves after the payment check has been cashed rather than dribbled out in paycheck increments like a salary increase
- Blurs the lines between the “lump sum in lieu of increase” and a “normal bonus” and can thus lead to double-snapshots (being paid twice for the same thing), confusion about which is for what or cancellation of one as redundant when both are actually proper
- Doesn't create any noticeable retention effect (the individual is already paid far more than any internal/external peer and will be unable to find matching income elsewhere)
- No research exists anywhere to support the claim that it is necessary
- Availability of lump-sum payments discourages the use of alternative superior non-cash rewards
- Extends and further perpetuates the total earnings disparities between peers with otherwise identical characteristics
- Misallocates scarce dollars badly needed for lower-paid peers who will never catch up despite superior output results and who thus remain more vulnerable
- Permits a department's payroll budgets to exceed the policy limits
- Clearly communicates that pay constraint measures are not serious
- Bluntly and forcefully declares that there is no upper limit to pay for any job
- If permitted as an exception, demonstrates that the pay system is fundamentally flawed
When lump-sum increases extend payroll costs beyond the levels permitted under your standard pay program, that implies that your normal program fails to meet your competitive and equitable tests. Ok. Then, why not redesign it accordingly rather than apply a "patch" solution like lump-sum increases? It would seem that it would be more appropriate to consider other options: (a) reclassify the position into a grade more appropriate for its incumbent's obvious true economic value, (b) create a special entitlement award category for the person if it's not a job-specific situation, or (c) otherwise revise the official pay administration program in order to have a more rational response with better positive effects and fewer (or less serious) negative effects.
Someone: please enlighten me about what I obviously must be missing, since everyone seems to merely shrug and accept the concept that when someone hits the pay ceiling, the standard operating procedure is to use flat cash awards to raise employee total compensation without affecting the guaranteed base rate. Pay policies that encourage infinite increase expectations via flat cash awards seem to be quite normal and well accepted, but where is the evidence that such lump-sums in lieu are necessary and superior to other alternatives?
E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.
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