A. Michael Hiles & Associates Inc.
Human Capital Management
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A. Michael Hiles & Associates Inc. Human Capital Management
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Reducing Inflated Salaries"I've got a problem. We've got several employees whose salaries are out of line with comparable employees -- including one employee who makes $10,000 more than his peers. The senior manager wants to lower this employee's salary and bring it in line with others. I'm uncomfortable lowering the salary. Will we damage credibility with our staff?" -- Manager, human resources, technical services company. Frequently, when we work with clients in this situation, there is almost a palpable sense within management ranks that the employees are getting away with over-compensation. Management is pressed to immediate action, and anyone standing in the way is seen as "weak-kneed" at best, or an "obstructionist" at worst. It is important to remember that employees do not have the power to increase their salaries. Over-compensation is the result of management actions and decisions based upon a belief that such past modifications to the compensation program were needed to attract and retain the kind of people the company required. A company must not convey this sense of frustration to the staff, since employees will pick this up and interpret it as making them pay for management's mistakes. This feeling, more than actual salary reductions, causes lasting morale and employee-relations issues. A compensation program is a company's most important statement of what it values and how it views the role of rewards in the larger context of its human asset investment. Compensation programs are living programs that need modifications over time and flexibility enough to handle the various business changes a company will face. A well-designed total compensation program must work in the good times, average times, and bad times. Overly rigid programs or plans where new elements are "piled on" without consideration of the total compensation message being created will eventually lead to problems. Also, as in most things, solid fundamentals never go out of style and provide the necessary foundation of a quality program. Clear and open communication is the required ingredient in any planned changes. Remember, today's changes are the alteration of management's past decisions. It is important to communicate that this is a necessary "evolutionary step," not a repudiation of a company's past actions. Salary reductions, while never easy or popular, can be done successfully. If they are done across the board, there are generally no legal considerations. If they apply to a specific group or individual, it is important to test the decision for any unintended adverse-impact consequences. The first consideration is the seriousness of the current and near-term business situation. This affects how radical the action needs to be. Consider the total message and think about how you will answer pointed questions, including "what will we do when we emerge from the current business crisis?" Lastly, review/audit your total compensation program annually to assure that it remains aligned with, and supports your business and human capital strategies -- don't wait for a crisis to force a review. Also, be wary of the "quick fixes", "magic bullets" or "we better do this because everyone else is doing it" modifications. SOURCE: David A. Hofrichter, Ph.D., Buck Consultants, New York, New York, March 22, 2002.
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