If We're Only Giving Increases to High Performers, Aren't We Cutting Everyone Else's Pay?

Here’s the second installment that I promised in my last post.  Another question from a recent Webinar participant – from someone like you, who is deep in the trenches this year. 

“If we’re only giving increases to high performers, aren’t we cutting everyone else’s pay?” Like last week’s installment, this is one tough question. I can picture how uncomfortable it would be to run into this hostile employee in a large group meeting.  Instead of hoping to duck and weave (fingers crossed), let’s try to figure out how to respond effectively. 

What’s the motivation?
Feelings will be running high in many companies this year. And sometimes they will be all over the place. Anger, misgivings, disappointment, frustration, worry, distrust – after all, employees will recognize that no increases in December means thinner times for them and their families in the upcoming 12 months and possibly longer. That’s enough to scare anyone.

As we all know, strong feelings often lead to fuzzy thinking. Our job is to empathize with employees’ feelings without agreeing with their fuzzy logic. Those who know their compensation Ps and Qs will recognize that this question about pay cuts is a bit wobbly, for example.

Frankly, I was disappointed that the HR leader who posed the pay cut question to me didn’t seem to see the wobbles. I think she must believe that this year’s increases are unfair, too. But as a leader in your company, you must face the facts. If you cannot support your company’s actions, you should not consider yourself a responsible spokesperson and bow out. After all, once the merit approach is approved this year, it won’t be changed. If you can’t be candid and help your employees through this tough time, you shouldn’t be involved with the communications.

Clarity is calming to a worried employee
Employees are looking to you to make sense out of what looks like contradictions. We say that we pay for performance but apparently it’s for only an exclusive group? We say that we pay competitively, but how can that be valid if my salary is standing still?

To achieve clarity, take the situation apart and explain the pieces. Once things get clearer your employees may not be happy, but they will probably see the sense in your company’s decisions. At least, more detailed information will help them begin to calm down.

To begin the analysis, identify the business issues that are driving your merit increase practices this year. Help employees develop the insight that “Exceeds Expectations” is not an HR term, but a business decision that is unique to your company’s financial plans.

Are you focusing on high performers whose successes go right to the bottom line? Are you focusing on high performers who are developing a product that is meant to lead next year’s strategy? Are you focusing on high performers whose results were achieved with limited overhead? Identify what your employees should learn about the business from your reward strategy especially if it will help them have faith in your company’s plans for 2010.

Aren’t we cutting pay?
I’m not really sure what this question means, are you? DO NOT ASSUME or you will answer the wrong question and confusion will reign. Instead of guessing what employees are referring to, find out.  Follow up questions demonstrate to employees that you want to listen and understand.

Has your company cut hours? Have you had employees return from furloughs? Even if the employee who is asking the question has not been affected by these cuts, he knows it could happen to him. 

Do these schedule reductions represent a cut in pay? It depends on how you have used that term in your company. Technically, these employees’ salaries or hourly rates haven’t changed. But employees who have had their hours cut will earn less than their annual salary this year. Whether or not they get an increase this year, they have had a cash flow reduction. Don’t tap dance or linger on the negatives, but be sure to use your terms accurately.

Do you think employees are referring to the cost of living? This can be a difficult idea to address, especially in companies that have paid “COLAs” anywhere in their past, even if it is only to Union members. Inflation may be low right now, but everyone who has been through a recession knows that can change at any time. If you are not ready to explain the crucial distinction between cost of living and cost of labor, be sure that you read our Editor, Ann Bares', explanation. Cost of labor is a term that needs to become part of employee communications about compensation, although you will want to time the introduction of this idea carefully.

Do you think they are questioning the competitiveness of their pay? If your salary ranges are current, it may be time to explain that the company has made sure that employee pay opportunities are competitive with the marketplace in spite of the limited merit budget. And then describe how this has been achieved.

What if there were only two games in the baseball playoffs?
My last Compensation Cafe post and this one handle two tough employee questions. Surely there must be more that you can pitch to me?  With two men on base, who knows what can happen next?

Send me a curve ball, why don’t ya?

 

Comments

[working girl]

I think it's a myth that there are only two kinds of employees: top performers and everyone else. Having said that, I agree with you it's essential to identify and communicate exactly what you're paying more for.

[Devoted Compensation Professional]

I read an interesting thought a few weeks ago in another blog where the author states, "for 2010 NO pay cut is the new pay raise". I chuckle, but rest assured that my compassionate side will win out over the occasional desire to sometimes tell it like it is. I'm certain that I'll soon be referencing one of the other posts that so eloquently discussed the differences between cost of labor and cost of living.

[Paul Weatherhead]

Great blog, Margaret!

My two cents worth on mischaracterizing "pay cuts" ...

I have worked in two very large organizations that had very engaged employees who spoke out on sensitive employee issues. Many times someone in the crowd will loudly mischaracterize a lower pay increase or a pay freeze as a "pay cut".

As an effective HR professional you should be prepared for that question. If no pay cut is involved the absolute first thing to say very clearly is, "The XYZ Company is not implementing a pay cut. No one's salary or wage is being reduced by today's announcement."

Then reiterate what the pay action truly is.

Then explain why the action is justified. Provide solid evidence of the financial difficulties of the company; and solid evidence that the rest of the industry is taking similar actions.

Will the audience accept your response with enthusiastic applause? Probably not. But at least you addressed the mischaracterization immediately and effectively.

[Margaret O'Hanlon]

Hi all. Don't know what's up with TypePad because they didn't post the responses I sent to you yesterday. (I worked hard to get back to you quickly, GDI.)

I want to keep the dialogue going, so let me copy the responses I sent. And thanks again for sharing your thoughts.

Working Girl: Thanks, WG! That gives me an idea for another column topic on employee communications.

Talking about how a select group of employees qualified for their merit increases this year is one thing. Talking about why the work of the rest of the employees mattered is just as important. The rest of the employees need insight into how their performance contributed to the company. They have a right to a straight answer and recognition for what they accomplished. So what do you communicate? It’s tricky, of course, since employees who aren’t getting increases will be skeptical (it’s an understandable reaction).

Devoted Compensation Professional: Hi DCP and thanks for the reality check. I’ve heard that one, too. I love dark humor, but not this time. Glad to hear that you will be putting the Compensation Café to good use. Keep in touch!

Paul: Thanks for describing the step-wise process to follow. It's always worked for me, and should be immensely valuable to everyone who is planning this type of meeting.

To all: Stop by again, soon. You're always welcome . . .