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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:
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:
HR professionals also should consider what other oversight might affect compensation within their specific organization. For instance:
Strive for Effective Communications
When a compensation decision is ready to be announced, aim for effective messaging that includes these components:
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:
How to Show Empathy
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.
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.
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