EMPLOYEES AT THE TOP OF THE PAY SCALE—WHAT TO DO?

 

We have all had the experience of trying to figure out what to do for employees who have reached the top of the pay scale.  Usually these are long service employees.

 

There are several considerations to think about before deciding what to do:

 

1)      The first consideration is whether the pay scale is correct for this employee.  Jobs do change over time, so the pay scale or grade should be verified—externally against market data, and internally, against jobs of similar responsibilities.

 

2)      Next, consider what employees are told about how salaries and pay increases are determined.  Have they been told that there is a maximum value for every job?  This is a basic principle of compensation, and most employees are aware of it, in some fashion.  It exists in almost all segments of our economy.  Usually, the minimum and maximum pay for a given job is fixed at 20% below and 20% above the average, or at the 25^th percentile and the 75^th percentile of market data.  It is important because prior knowledge on the part of the employee fosters understanding when one gets there; no prior knowledge fosters anger and feelings of being under-appreciated—of being singled out for no discernable reason. 

 

3)      Next consider the performance of the employee.  Good, meeting all job expectations?  Better than good—noticeably above others in similar classifications?  Just OK?

 

4)      Next consider the marketability of this employee.  If he/she is at the top of the pay scale, that is at the 75^th percentile or higher in the market.  Very well paid for what he/she does.  Is there a substantial demand for this job, such that the employee can easily move to another firm?  Can you easily replace this employee if necessary?

 

5)      Think strategically:  is it better for your firm to have a policy for all employees (with some exceptions) or is it better to treat these cases on an individual basis?

 

Usually, an organization is in a better position if there is a uniform policy that applies to all, and the most prevalent approach is that there will be no further increases to base salary until the pay scale increases.  But there are choices beyond that:

 

Every employee who reaches or is approaching the top of the pay scale should receive a special counseling session on the concept that every job has a maximum value.  This should be done at employee meetings and one-on-one.  The session should include discussion of what other jobs the employee might be qualified for (promotions), and how to get there.  Employees who want to move up the organizational hierarchy often don’t know how to do it.  They welcome this interest and guidance, particularly if it happens before they hit the max.

 

Employees who are not interested in moving up present a different challenge.  They want to continue their same job and continue to receive increases regardless of the pay scale.  They, too, need the discussion of every job has a maximum value, but of course they need more.  They can be given projects or assigned to project teams, that if completed successfully, are bonused.  They can be appointed to teams that give them prestige, and perhaps a voice, in the organization.  In short, recognition, whether bonused or not.

 

The last resort is also the most prevalent practice:  giving employees at or above the maximum of the pay scale a lump sum or a bonus, usually equivalent to the average merit/general increase.  This is acceptable but hardly the ideal.  It recognizes the employee, although in a clinical way; but it does nothing for the organization. 

 

In the ideal world, the scenario would be:

 

1)      Employees are made aware of the consequences of reaching the maximum of the pay scale before they reach it;

 

2)      A uniform policy exists of what actions are possible when an employee does reach the maximum of the pay scale incorporating:

 

a.       Performance

b.      Ability to qualify for a higher ranking job

c.       Ability to contribute in areas outside of the immediate job and which are bonused

d.      Ability to continue existing job performance

 

The bottom line, of course, is to do the best for the organization—which means motivating employees to continued good performance.  That means retaining and satisfying those employees who are capable of continuing contributions to the organization and accepting that some are replaceable.