Tips for Handling—and Communicating—Compensation Changes
Employees view changes to pay structures with fear, hope and concern
Organizations often make compensation changes driven by business necessity—for instance, reducing annual merit pay raises from the prior year’s level, launching new incentive pay programs (and making variable pay a larger portion of total compensation), or revising the salary structure with adjusted pay ranges or bands.
Shortly, many employers will be implementing the U.S. Department of Labor's soon-to-be-released final rule on overtime pay, which will limit the Fair Labor Standards Act's (FLSA's) white-collar exemptions and require many employees to be reclassified from exempt to nonexempt status.
Regrettably, many organizations forget to consider the far-reaching effects of those decisions during the planning and communication phases. To avoid unwelcome surprises, consider these steps when rolling out compensation projects or adjustments:
Benchmark Best Practices
Don’t venture into pay modifications without considering what others have done. Blindly reinventing the wheel is neither wise nor cost-effective. Ask the following questions before proceeding with any significant compensation decision:
- How can I get information from other organizations that have implemented a similar change?
- Are there people within the organization who can share their experiences or who have access to others’ best practices (e.g., supervisor, co-workers, legal support)?
- Do I have access to resources from professional organizations such as template forms, sample procedures or communication drafts?
- Are there surveys or other written resources that will highlight best practices?
- Have I identified lessons learned from others who have implemented similar projects?
Understand Applicable Regulations
When making decisions on compensation changes, keep regulatory governance at the forefront. At a minimum, federal, state and industry regulations should be reviewed for any constraints or guidance.
Many compensation-related laws need to be adhered to and should be considered early on in the planning stages of compensation restructuring. Here is a partial list to consider:
- Fair Labor Standards Act.
- Equal Pay Act and Lilly Ledbetter Fair Pay Act.
- Title VII of the Civil Rights Act.
- Executive Order 11246 (prohibiting employment discrimination by federal contractors).
- Davis-Bacon Act.
- McNamara-O’Hara Service Contract Act.
- Uniformed Services Employment and Reemployment Rights Act.
HR professionals also should consider what other oversight might affect compensation within their specific organization. For instance:
- Does the company have an executive team, board of governors or regulatory client that might need to approve the decision?
- Where there are unclear laws, are there related court rulings that should be reviewed?
- Does the company have bargaining units wherein changes have to be carefully reviewed against collective bargaining agreements and/or negotiated prior to implementation?
Strive for Effective Communications
When a compensation decision is ready to be announced, aim for effective messaging that includes these components:
- Procedural communications. Double-check that procedures, policies and other company documents are updated, along with any related forms, website information or additional materials. Failing to update contradictory procedures as compensation changes are rolled out could result in confusion between old provisions and new ones and could lead to employee frustration.
- Personal communications. Consider drafting different communications for uniquely affected categories of employees. Compensation communications that impact a limited number of employees should be personalized whenever possible. Personalized communications should still be professional but should have a personal focus regarding how individuals will be affected and what they need to know.
- Example: A company is announcing a new variable pay incentive plan that does not affect bargaining-unit employees. In this case, it might be best to remove the bargaining unit from those communications or to tailor two different communications for the represented and nonrepresented groups.
- Organizational communications. Carefully consider the most appropriate channels for the type of information being communicated (e.g., all-employee memos, webpage updates, letters, e-mails and training sessions from HR professionals).
Show Empathy
Money is a highly emotional topic. Employees have a lot of fear, hope and concern connected to their compensation. Employers should always consider how employees are likely to feel about a significant change in pay arrangements.
When crafting communications, relaying these changes includes showing empathy whenever possible. Not sure how to do this? Consider the two examples in the table below:
Change | Communications | How to Show Empathy |
Demotion | Face-to-face meetings with a demotion letter stating a lower salary grade and base salary | • Think carefully about the timing and location of the meeting; try to reduce the awareness of others who do not have a need to know about the change. • Consider allowing for a reasonable period of time before any demotion in salary would take place. Remember that these employees have bills tied to their disposable income, and if you can give them some time before their salary is reduced, it will demonstrate compassion for their situation. It may also help retain that employee in the long run, despite the negativity of this action. |
FLSA Reclassification | Announcing that, based on a job duties review, employees will be reclassified from exempt to nonexempt status | • Clearly communicate to the employees the process for the review and the reasons for any changes. Many employees feel that changing their position to nonexempt is a demotion and do not realize it may need to be done for regulatory compliance and to protect their rights to receive overtime pay. • Ensure that the employees are able to provide input regarding their job duties. Otherwise, they may feel that the review was not fair or thorough, especially if they did not get to share feedback as part of the review process. |
Following the tips above should help organizations to successfully implement compensation changes. Taking time to carefully develop communication plans, to craft appropriate materials and to consider how employees are likely to respond should help HR professionals navigate these difficult projects.
Juliet Gaffney Fitzpatrick, SHRM-SCP, CCP, is an HR professional and adjunct instructor at Columbia Basin College in Pasco, Wash. Her areas of interest include compensation, benefits, compliance, retention and recruiting, and building HR’s role as a strategic partner.
Related SHRM Article
- Overcome Sales Force Resistance to a New Comp Plan, SHRM Online Compensation, March 2016
- Evaluate Pay Issues as Talent Market Heats Up, SHRM Online Compensation, March 2015
Quick Links
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