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Dear Workforce How Do We Reduce Inflated Salaries

Compensation programs are living programs that need to be modified over time and be flexible enough to handle the various business changes. Clear and open communication is the required ingredient with any changes.
August 30, 2002
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Related Topics: Compensation Design and Communication, Dear Workforce, Compensation
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A Dear Fallout:

Frequently, when we work with clients in this situation, there is almost apalpable sense within management ranks that the employees are getting away withover-compensation. Management is pressed to immediate action, and anyonestanding 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 increasetheir salaries. Over-compensation is the result of management actions anddecisions based upon a belief that such past modifications to the compensationprogram were needed to attract and retain the kind of people the companyrequired. A company must not convey this sense of frustration to the workforce,since employees will pick this up and interpret it as making them pay formanagement’s mistakes. This feeling, more than actual salary reductions,causes lasting morale and employee-related issues.

Compensation programs are living programs that need to be modified over timeand be flexible enough to handle the various business changes a company willface. In short, a well-designed total compensation program must work in the goodtimes, average times, and bad times. Overly rigid programs or plans where newelements are "piled on" without consideration of the total compensationmessage being created will eventually lead to such problems. Also, as in mostthings, solid fundamentals never go out of style and provide the necessaryfoundation of a quality program. Clear and open communication is the requiredingredient with any changes. Remember today’s changes are the alteration ofpast management decisions. It is important to communicate that this is anecessary "evolutionary step," not a repudiation of a company’s pastactions.

Salary reductions, while never easy or popular, can be done successfully. Ifthey are done across the board, there are no legal considerations. If they aredone in a specific group, it is important to test the decision for anyunintended adverse-impact consequences. The first consideration is theseriousness of the current and near-term business situation. This affects howradical the action needs to be. Consider the total message and think about howyou will answer the questions regarding "what will we do when we emerge from the current business crisis?"

Lastly, review/audit your total compensation program annually to assure thatit remains aligned with your business and human capital strategies -- don’twait for the crisis to force this action. Also, be wary of the "quick fixes"or "we better do this because everyone else is doing it" modifications. Acompensation program is a statement of what a company values and how it viewsthe role of rewards in the larger context of its human asset investment.

SOURCE: David A. Hofrichter, Ph.D., principal and national practice leader,Buck Consultants, New York, New York, March 22, 2002.

LEARN MORE: How Do We Change Our Pay Frequency Without Alarming Employees?

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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