The COVID-19 pandemic and resulting economic fallout have spurred layoffs and furloughs for many employers. As the months pass, organizations that have retained employees face another dilemma: How should we handle compensation changes?
Pay raises have been out of the question for some organizations. In fact, more than 25% of employers surveyed in June by global advisory firm Willis Towers Watson reported reducing salaries rather than increasing them. However you handle compensation this year, it’s critical to communicate clearly and carefully with employees.
Hold honest discussions
Even in the best of times, communication about raises can be tricky. Most employers keep individual compensation information confidential, of course. Yet it helps to provide some context about the calculations and economic circumstances that determine raises so employees feel confident that changes to their compensation (or delays in those changes) are in line with the market and will eventually reflect their contributions.
When talking with employees about compensation, you and your managers should allow enough time to have an honest, unrushed discussion about the rationale behind compensation decisions. To the extent possible, identify and thank each employee for specific contributions that he or she has made.
Sometimes, despite an employer’s best efforts, an employee may be dissatisfied with either the raise provided or, in today’s environment, the lack thereof. Consider providing a statement that outlines the worker’s total compensation, including health care and other benefits. Employees often overlook the value of benefits in addition to a salary or wages.
In some cases, you might be able to offset pay cuts or the lack of a raise by offering a nominal one-time bonus or nonfinancial perk, such as additional time off or more flexible working hours.
Revisit your raise schedule
Now may also be a prudent time to revisit the “raise schedule” your organization uses to time compensation changes. Although many organizations issue raises following annual reviews, other schedules can make sense.
For example, if some of your positions are experiencing high turnover, you might be able to attract strong candidates and boost retention by offering new hires a modest increase after several months. No matter what the schedule, be sure to communicate with employees about when changes to their compensation may occur.
In addition, decide how to handle employees who ask for raises outside the normal schedule. Some organizations assess these on a case-by-case basis; others flatly prohibit them. If a raise isn’t feasible and you want to retain the worker, you may be able to identify nonfinancial incentives that might resolve the situation, such as a change in title or more flexible working hours.
Another layer of complexity
Adjusting employees’ compensation levels has always been a challenging and delicate matter. This year’s crisis has added another layer of complexity to the task. Consult an employment attorney to identify sensible communication approaches that limit your legal exposure. And please contact us for additional guidance on analyzing your payroll and developing policies regarding pay raises or cuts.
We highly recommend you confer with your Miller Kaplan advisor to understand your specific situation and how this may impact you.