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10/28/2010

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I enjoyed this post, which presented several refreshing new arguments. I think the thinking generally stops at not creating an ongoing salary burden that blinks on your 'above grade max' report. As for the one-time payroll hit, some companies distribute both bonuses and lump sums over multiple pay periods.

Some negative effects from the continued largesse of lump-sum increases can be minimized and finessed, but why are doing this in the first place? Have Total Rewards professionals simply accepted the prevalent entitlement philosophy that pay always grows, no matter what? Is it merely our role to assure that personal incomes and total remuneration amounts are larger every year? If so, then lump sum increases are just another useful administrative device for our primary mission: to spend money. But I thought we had a deeper and broader purpose than that.

Thanks Jim. I just moved to an organization that uses lump sums more than my prior org so I appreciate timely post. Here are my quick thoughts/responses.

The pro is that is doesn't compound in the true sense of the word. The ER can provide the EE a monetary increase that keeps them "whole" for the year w/o increasing the liability of increase dollars in year two. Win-win.

Reclassing the EE to a new grade sounds like gaming the structure and destroys the integrity of the system, which is designed to catch those whose pay--for whatever reason--is above the value the ER puts on the position.

Creating a special entitlement award as an option sounds a lot like a lump sum.

Option C sounds good but I don't have viability to what that actually means.

I hope you don't take this as argumentative--I think it's a great and timely topic for me and I'm just trying to fully understand.

Joe

My question goes to the issue of WHY we are continuing to assure infinite added income to people whose pay "is above the value the ER puts on the position." Why is more cash required to keep folks "whole"? At present, inflation is flat or negative, buying power is higher than before, competitive market rates are going nowhere (if not already in reverse) and your internal pay program is screaming "tilt" because the individual's remuneration has passed the limit of rational justification. What's the justification?

Maybe we comp people are addicted to dispensing funds and making EEs happy. That's what I'm trying to understand: do we have a rational purpose behind the lump sum increases not better served by other mechanisms like performance incentive bonuses and non-cash reinforcements. Those options don't carry the same entitlement implications.

Inflation is positive... for now. Don't know if it's as much as making EEs happy as it is keeping them in the game and away from being disgruntled, which can decrease productivity and can be contagious.

The variable mix is a point well taken but not sure if outliers are worth the design and administrative hassle.

Good point, Joe, that a disgruntled senior staffer is particularly toxic. You do what you have to, but we do well to remember that there is more than one arrow in the quiver. "The game" is not always about cash.

Jim, In many of your posts on the WorldatWork community you have talked about the dangers of lemmings following each other off the cliff. So you will no doubt appreciate the fact that we take a different approach to the issue.

In our Pay-For-Performance system discussed in the Workspan article "Pay For Performance Works" (http://www.worldatwork.org/waw/adimLink?id=16925&nonav=yes) we pay our awards as salary increases. Any part of the award that would bring an employee's salary over the grade maximum is converted to a lump sum payment. If a red-circled employee is over the maximum, its all paid as a lump sum payment.

All the percentage awards are calculated on the employee's base salary, regardless of where the salary stands inside and outside the range. We do this for ease of employees understanding the link between the PFP award matrix, the percentage award, and their own base salary.

Why provide anything to someone impacted by the salary maximum? We feel that all employees can make a contribution - no matter where their salary is inside or outside of the salary range. That's why the person is employed. We feel that it keeps everyone "in the game" (so to speak) to keep them eligible for the PFP award matrix.

To those saying that low inflation / CPI growth means employees don't need/deserve raises, obviously don't know much about how inflation is measured.

For most employees, those making less than 75,000 per year food and energy make up a large fraction of there expenses. CPI does not include food and energy. So "inflation" could be low or negative while your "overpaid" employees are paying more at the pump and at the grocery store. Not to mention that CPI is almost as gamed as the U3 unemployment numbers that it really tells you nothing about what it cost real people to live on a day to day basis.

Everyone always wants more, all need more, most believe they deserve more; and "inflation" or "CPI growth" are favored mantras proven effective for justifying raises over generations. They have waned in usefulness recently but should gain utility again as the Federal Reserve pumps bond money into the U.S. economy. Granted, those are terribly misunderstood metrics, whichever version of each you use, and neither term (which assumes a fixed arbitrary marketbasket of goods of services) accurately reflects what actual American family lifestyle costs are.

That said, what it costs your family to live is not the same as what it costs mine, and those unique individual expense decisions are beyond the control of our employers. My article was not about employee costs or family expense budgets but about one particular pay element of employER costs.

Your topic is important but this isn't the time or place to cover it. Rest assured, there have been and will be other opportunities.

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