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Dear Workforce How Do I Reduce The Salary Of A Long-Time Employee

It’s probably worth changing to a merit-based compensation system to avoid dilemmas like this in the future.
April 7, 2002
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Related Topics: Compensation Design and Communication, Dear Workforce, Compensation
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A DearNervous:

This is not an easy issue to address, although salary discrepancies are notan unusual situation in a seniority-based compensation system. Manyorganizations today are moving towards performance-based salary increases, inorder to avoid such discrepancies between an individual's skill set andcompensation level. Moving forward, your organization might want to considerre-evaluating the current compensation plan and consider merit-based increases.

In dealing with the current situation, however, it is important that youfirst assess several factors regarding the individual. You say that he does nothave the competencies required to move into the supervisory role, but is therean intermediate position into which he could move to lessen the wage decreaseyou are suggesting -- more than 50 percent pay cut?! Such a severe cut in paycould be financially devastating to someone, and could even have a negativeeffect within your workplace and possibly your community.

Be prepared for the possibility that this employee will choose to leave yourorganization, and evaluate carefully his importance to you. Even though he mightnot have the skills to be promoted to the supervisory role, he obviously hasmany years of experience and may be able to mentor others coming into hisclerical role.

You should also try to find out why this man's length of service is notcommensurate with his skill set. If growth and development opportunities wereavailable to him and he did not take them, then you might question his value asa motivated employee. If the development opportunities were not available, thentry to find a way to help him to develop the skills necessary to be promoted andearn the salary he is currently receiving.

Once you have assessed the possible repercussions of a salary reduction onthe employee and your workplace and the reasons why the employee's skill set isnot on par with his length of service and therefore salary level, you will wantto pursue the following course of action:

  • Cleary define with market research the basis for your belief that theemployee's salary is not in line with the current market value for hisposition.

  • Make a list of the specific competencies required to perform thesupervisory role and a list of the employee's skill set, so that you canclearly illustrate the differences between the two. In doing so, you willgive the employee a chance either to make a case that he is qualified or tosee why he is not qualified.

  • Sit down with the employee and share the above-referenced documents youhave compiled. Explain to him your rationale for the meeting and the problemwith his salary.

  • Based on the employee's reaction and what you consider his real valueto be to the company, you can put together a plan that would allow him tosucceed by being promoted, or offer to assist him to transition to anotheropportunity.

No matter what you choose to do in the end, it is essential that you involvethe employee in some way in the decision-making process, so that he does notfeel like it is a surprise personal attack. Sit down and look at the problem andthe possible solutions together. Make sure that the employee understands thatthe reduction in pay is not due to lack of performance; rather, it is due to amarket correction. The way you handle this situation could have an effect onyour future recruitment and retention efforts; therefore, a certain level ofdiplomacy is required.

SOURCE: Rich Miller, managing consultant, Drake Beam Morin, Kansas City,Kansas, Oct. 1, 2001.

LEARN MORE: See "The Advantages of a Two-ComponentApproach to Compensation"

The information contained in this article is intended to provide usefulinformation on the topic covered, but should not be construed as legal advice ora legal opinion. Also remember that state laws may differ from the federal law.

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 The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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