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05/07/2014

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Well stated, Jim.

In many countries outside the US, acquired rights laws would prevent this from ever happening.

In such a global world, it's time to realize that one size does NOT fit all.

Some will be "shocked, shocked," to hear that everyplace doesn't share exactly identical rules, Warren! ;-)

If you think about it, we've seen a somewhat slightly softer form of this with the addition and (one hopes, when appropriate)deletion of hot skill premiums.

I have always advocated that these be paid and shown on pay statements as a separate line item.

Tony's quite correct that disengagement from a previous remuneration scheme is much easier when it is supplied as a distinctly separate item. Especially when you keep repeating that this is temporary, like the guy riding in the chariot whispered into the ear of the Roman general during his parade of honor. This truly is the era of take-aways. Let's just hope that we can make the bad stuff be more temporary than the good stuff.

Moral, amoral, whatever. It's illegal here in New Zealand.

All organisations could do here is reduce the starting salaries and salary ranges for new employees (but even there, they'd better be careful, as that could be seen as gender discrimination, age discrimination or both).

Thanks for the feedback about NZ regulations. Absent a labor contract, unilateral pay reductions are legal in the U.S., although the victims would qualify for full unemployment compensation if they quit over the unwelcome change in their work conditions. Disparate negative impact on protected classes would also be actionable here, too.

Business is a "person" when it suits them (political contributions) and not when it doesn't suit them (treatment of employees). Business in its purest form is amoral ---- just a fact. An Apple executive once said (not Steve Jobs): “We don’t have an obligation to solve America’s problems". The only obligation an American CEO has is to make money for the shareholders. The rest is superfluous.

You certainly are being cynical, Jacque, by offering Steve Jobs as a model of positive business morality. He's the one who engaged in no-poaching conspiracies with competitors, per http://www.compensationforce.com/2014/01/love-and-wage-theft-in-silicon-valley.html#comments and http://news.yahoo.com/steve-jobs-happily-got-google-employee-fired-trying-121030691.html. I seem to recall a very famous early labor leader also saying exactly what you seem to condemn, that the first responsibility of a business is to make a profit. That’s basic economics and is also a fiduciary duty of a CEO.

The profit motive does not require inhumanity, however. That’s the point. We are ALL businesspeople, but we still get to make moral choices. This is a chance to demonstrate positive ones.

It would be far less problematic, and more humane I think, to just eliminate a job that is no longer necessary and/or worth less to the organization than the cost to maintain it. Sending an employee on their way with a thank you and a severance would be less harmful to morale than blantantly taking from Paul to pay more for Peter.

Seems that almost every organization agrees with you on that point, SecretCompMan. If the redundant employee can't be retrained or transferred to a different role worthy of their pay, a friendly kiss-off may be better than creating the opposite situation. Besides freeing up the entire salary, an amicable separation also preserves the ego of the victim. But they still need a new income source; hence the continual utility of outplacement firms.

Jim,

Thanks for the post. I think the question has to go back to the business issue that they are trying to address with this approach. What is the outcome the company is trying to achieve and what alternatives did they explore. I’m never one to take options off the table but without context this one seems a little extreme and full of negative consequences.

I agree with Tony that some of these issues can be thought out before hand with adding and deleting separate “hot skill” pay line items. You could even adjust incentive opportunities to provide more performance based solutions.

The point I think everyone is making is that there are many ways to “skin the cat” and context and a little forethought may provide a better solution. Not to mention, as others have, you can’t take this approach in many international countries.

Trevor: concur that although the objective may be legitimate, the need for instant "right-paying" changes could have been prevented by any number of other options. What I hoped we here could discuss is not whether the employer should have allowed itself to be backed into this corner, but if the "compensation cannibalization" approach should be endorsed as a useful option in America.

Obviously, it would be banned in many nations. Even while it may be generally legal here, everyone so far seems to agree that the specific pay reallocation proposal is unacceptable for myriad reasons. Speaking of cats, it seems like an idea that might come from cartoonist Scott Adams' Catbert the Evil HR Director.

Jim,
I think it would be the option of last resort and mean there was a lack of planning from the beginning. In my opinion using this option signifies a failure within the company at many points. Unexpected things happen in business but I can’t think of a situation where “right-paying” would be the leading option I would recommend.

Would executive “right-pay” their employees if it meant their pay would be “right-sized” for their ineffectiveness? If a Board hires key executives to lead a major change effort and pay them extra for this “hot skill” should they then “right-size” their pay when the company returns to a more “normal” state?

Is this an approach that Boards would follow at the top? Maybe then it could become more palatable.

Now you have hit on what may be the most viable alternative option, Trevor. Shifting a larger portion of total income to at-risk variable amounts contingent on specific output results is both practical and popular. It is the regular rule for executive compensation and has become much more acceptable at lower levels in recent years. Biggest problem is the greater reliance of lower-income workers on their base pay. Most people lack sufficient guaranteed disposable income to survive wide pay swings the way executives can and do.

Turn-around experts are routinely hired and fired or reassigned after their urgent project has been completed with appropriate bonuses awarded. Hourly workers are treated differently. Perhaps that should change. Pay can be more responsive when tied more directly to skills than when based on "jobs."

Agreed Jim, the base pay of executives is rarely “right sized” and they should have a better ability to weather the ups and downs of incentive pay awards. Even when you do see a CEO take no base pay it’s because it is nothing compared to the incentives and equity positions they have, base pay is nice pocket change. You will never get consensus when you ask the question of what is sufficient guaranteed disposable income to survive for lower level employees.

It may be harder to shift a large portion of total income to at-risk for lower paid employees without setting very achievable Threshold levels of performance and then ramping up the curve. But I’m not sure this level of employee is the focus of the original article.

I think pay can be most responsive when tied to responsibilities and results. If an employee has skills that are not being used or doing a job without getting results I don’t want to pay for it.

@EJB - Wow! Deja Vue! Wasn't "pay at risk" trotted out sometime circa 1980? Whatever happened to that idea?

Trevor: Bingo... when you're right, you're right! However, there's at least one exception to your final thought. Uniformed services DO tend to pay for unused critical skills, especially if they hold preventative occupations like firefighter or soldier.

Tony: "at-risk pay" is so outdated that the only mention I found today was re a CEO incentive package. In the immortal words of Yogi Berra: "it's deja vu all over again." Good ideas never die but can be endlessly recycled. Don't pitch your old tools, as I said last January.

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