How can an employer determine who deserves raises?
The practice of giving cost of living adjustments (COLAs) across the board should be gone, but is not. Business owners who may be uncomfortable with compensation discussions often fall back on giving everyone a 2 percent raise, thinking they are being fair. A 2 percent raise does not make a discernible difference in pay for most employees. And COLA strategies favor the weakest and worst performing employees over the high performers and discourage great performance.
Unfortunately, compensation decisions are often not kept confidential and it’s prudent to assume your decisions will become known. This underscores the need for objective legitimacy in the decision-making process. Set quantitative benchmarks and standards for performance whenever possible and communicate to employees which soft skills are valued. This makes it clear what contributions will be rewarded. If your managers are making compensation decisions, ensure they are using the same criteria. Should employees learn that you have provided raises only to the highest producers or best contributors, the fairness of your decisions can mitigate disappointment in their own exclusion. At the least, you will send a powerful message that your rewards system has integrity.
How can employers manage the ‘no-raise’ message for the best possible outcome?
When business performance prohibits raises, it’s important to get out in front of this decision with the proper messaging. You might say, ‘Profits are down 15 percent, and we have to defer raise reviews until January. I wish we could make another decision at this time, but we cannot.’ This message should not be communicated via memos, e-mails or water cooler gossip. Frank discussion with employees, individually or in groups, shows respect for their need to plan their lives and financial matters. If you have a large business, taking time to ensure all managers communicate this message consistently is crucial. If you need to delay raises again, give employees a new date when your decision will be reviewed. Avoid creating confusion and uncertainty to prevent having employees share their frustrations with customers or vendors.
This process is often not just a one-time activity. Consider providing some simplified information on what’s being done to reverse declines and return to normal operations in order to enhance morale and productivity during difficult periods. Regular updates help people see light at the end of the tunnel.
How can employers create money for raises?
One approach is to eliminate one or two positions held by low performers and use their compensation (or part of it) to provide raises to the better performers. Often good people will gladly shoulder more work for higher pay. Redesigning territories so the retained sales people can achieve higher commissions may also be a reasonable alternative to continuing pay for all sales people, including the underperformers. In many companies employees see this as a fair solution because it acknowledges that some employees are contributing and some are not.
Peggy Pargoff, PHR, is senior vice president at ManagEase. Reach her at [email protected] or (714) 378-0880.
