Salary Increases being decreased

slewis · March 2004

Yesterday, the COO was discussing with the Directors some changes in the way we give pay increases. To give you some history, almost everyone here receives at least 5% every year, alot of times more, whether they do a great job or an average job. That is a problem with our managers, I know, but the fact still remains. Our average salary increase last year was 7.25%. This year they want to put the cap on the salary increases to be 3%. I would really like some opinions and ideas on how to approach this with the employees because of what they are use to, I believe, it is going to be received as very negative and individual performance based. I am also thinking we need to look at our Performance Appraisals because we are still using a rating scale and if someone scores a 3 they should get a 3% increase but that is not being followed because they don't want to lose people. Also, a problem with management, but they have been allowed to do this for so long I am concerned with the ramifications with this change. Does anyone have any advice to offer and/or a performance appraisal form you could send me to help me restructure ours?
I appreciate any input. Thank you.
[email]slewis@pmds.com[/email]

MrCreosote · March 2004

Somebody directed me to an article on Salary.com, "2003 Raises Lowest in More than 30 years" by Lena Bottos. You probably don't want to direct folks to Salary.com because it may increase their mistaken sense of injustice if they start looking up inflated salaries there. But the article is very good, and I used it to help address some manager concerns. I was tempted to post it, but didn't

Don D · March 2004

You could just tell them the honeymoon is over. 7.25% and larger raises year after year is pretty darned high. Our corporation just went through a worldwide wage freeze and postponed all increases six months, then they kick in. Unless your employees exist in a vacuum, they know their raises are the highest in town. They should not be surprised when they learn that management is trying to get a handle on reality.

AnneLa · March 2004

It might help to make your employees aware of what the salary increase percentage is for your state or regional area. Educate them about the reality of the situation, and it should aleviate some headaches for you.

Frenchie · March 2004

Last year we initally budgeted 4%, but took that down to 3%. The logic was either everyone takes less or we have fewer employees. We were still able to recognize performance by giving anywhere from 0 to 3%. Your employees have been very fortunate. It's time for them to learn that there is only so much money in the pie. It sounds like the managers need to understand that also and be held accountable to their budget. I don't think you will lose very many people if they don't get the usual 5% or above. They're probably educated enough to know that there aren't many good jobs available right now. We presented a "Finance 101" to our associates to help them understand. In that we compared company budget to their budget at home. The numbers are vastly different, but the concept is the same.

System · March 2004

The problem with a cap on raises is that it punishes an employee who does a fantabulous job. Maybe you could allow a bigger raise with the CEO's permission. Or cap each department's raises at 3% to allow the supervisor to give bigger raises to some, smaller to other.

James Sokolowski
HRhero.com

Mentel · March 2004

I totally agree with James. Go with a 3% budget and let the raises range from 0 to 5%. That way, the people who may be low in their range can move up. After years of 7% or more, I can't believe there are too many people low in their range except for those recently promoted. Don't give everyone 3%. This sends the wrong message! Performance does count and should be recognized.

Rockie · March 2004

The medical practice I work for operated much the same way as you described. Employees were used to huge salary increases every year which superinflated their annual salaries compared with our market. When Medicare started cutting back on the reimbursement they gave medical practices, incomes for physicians started decreasing. Docs were not willing to work harder to make the same money, so guess what? The largest budget item is salaries and benefits, so salary increases were decreased. We recently went to an across the board increase instead of performance based. We had flirted with doing incentives, but unless they can be measurable and enough to be meaningful, this can cause more harm than good.

Because of huge rate increases in insurance, employees also had to start cost sharing insurance. Before, all employees had their insurance totally company paid.

We are still above market in our salaries, but our employees don't have to work nights or weekends as they do in the hospital. This makes our facility attractive to people who "want a life" instead of working 12 hours a day to make the big bucks.

It can be done...you have to educate your employees as to WHY it is necessary and it is unrealistic, given today's economy to continue to give superinflated raises.

Good luck. This is never pleasant.

Pricehcs · March 2004

This is definitely the way to go. One of the toughest changes in my company was breaking away from standardized grade based % increases and moving to individually earned merit increases. When you set a department/organizational merit increase budget, it is critical to differentiate between the stars, the steady state performers and the deadwood.

#1 thing a consultant shouldn't say: "I could tell you the answer right now, but we're committed to a three month project..." #-o

slewis · March 2004

Thank you everyone for your input. We have decided to put a memo into paychecks this week with the changes in the salary increase scale. This also gave us the opportunity to take a real good look at the job descriptions and performance reviews and we made some nice changes to those forms. Now instead of a standard form for everyone, we have individual performance reviews based on the duties and responsibilities outlined on the job descriptions. I will let everyone know how payday turns out and what, if any, backlash we get from this.
Thanks again!

Hatchetman · March 2004

[font size="1" color="#FF0000"]LAST EDITED ON 03-24-04 AT 06:56PM (CST)[/font][br][br]While what the others are proposing can work, ifyour supervisor and managerial ranks are considered fair or aren't respected by the line employees and lower ranks, a system like this can wind up causing more damage than you think. Also, you will need to train managers and sueprvisor on how to make a fair assessment not only on the level of work that is being doiine but the difficulty and the particular skills of the individual employees.

For example, do you give the same percentage increase to the emplyee who does as good as a job as the eprson doing the same job but with more experience and training? Or do you boost up the less experienced employee because he or she is in fact matching the experienced employee in performance and quality of work?

Plan out the change and make sure everyone knows how it is going to work, what will be consdered and not considered, and how an employee is going to be able to get fair consideration beyond the personalities of the raters involved. If an emplyee believes that he should get a 4% increase rather than a 2% increase will he be able to make an effective pitch to the right decision maker or will he just be told -- "sorry, you can't challenge it!"

If you go this route start it next year. And have an executive committee review the ratings and set the increases for each employee.

blw · March 2004

I'm late reading this but have one comment. Something to consider when going to a flat department budget. It can work well in large departments but hurt small departments. If you have two stellar employees in a department, both can only get the average increase due to the total department budget.

Someone needs to be able to waive/overide in those few situations.

Salary Increases being decreased

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