On Employees and Pay Maximums

Some of the most challenging conversations that I've had in the course of my compensation work have been with employees who were either at or over the top of their salary range maximums.  I'm guessing more than a few readers can say the same.  Following a comment exchange on this topic with a reader in a recent post on lump sum merit increases, I decided that a separate post might be in order.

Organizations with formal compensation programs in place typically establish salary ranges (or steps or schedules) for the purpose of managing base salary decisions in a consistent and equitable way.  Inevitably, based on continued tenure (or for a host of other reasons), employees reach the maximum salary rate for their assigned range or schedule.  On the positive side, range or schedule maximums are typically set at a premium over the "going market rate" for a position (in my experience, 15% to 20% is most common), so the employer has presumably allowed for some "extra" to reward those who have performed well in the position over time.  Also, it is good news that most organizations review and adjust their ranges and schedules on a regular basis in order to keep them competitive, thus providing even "at max" employees some opportunity for movement.  There is also the practice of providing lump sum merit awards in lieu of salary increases, in an effort to keep these employees "whole".

The undeniable bad news, however, is that employees in this situation will likely see their annual income move very slowly going forward.  Particularly in times of rising costs, this is not welcome information.

As a reward professional, I have two thought streams on this.

First, this.  It is a real but sometimes hard-to-swallow fact that different jobs and skill sets command different pay rates in the market for talent.  Accordingly, every job and skill set faces a pay limit related to its value in the market.  Want to earn more?  Then learn new skills, increase your capabilities, get a degree (all of these preferably in a high demand talent area) - in general, figure out how to bring more value to your (or any) employer.

I rarely, of course, get the standing O when I deliver this speech to a group of employees.  But I do it anyway, because I think I owe them the information and perspective, and because I think it is important for all of us to understand how the market for pay works.  And for all of us to appreciate that we each have a role and a responsibility relative to our wish to maximize our income.

Ok, then.

There is the other (second) side of the coin as well.  Employers, HR and reward professionals: If we are really about talent management (and not just personnel administration), we should be looking at these situations and asking ourselves is this a case of an overpaid employee or an underutilized asset?  Have we truly considered whether or not we can better leverage this person's talent and abilities in a higher value role?  Are we providing tuition benefits and other support that the motivated employee can tap into on their quest to continuously improve their skills?  Does our annual performance management process include (or mandate) regular conversations about stretching and development?

Certainly, it is often the case that we have set the employment stage well, with all the necessary support and assistance, and it is up to the employee to take the ownership and initiative for the next step.  But I'd like to leave you with Thomas Friedman's (he of The World is Flat, one of my favorite books) recommendation for the new employment contract between today's employers and employees, as food for further thought:

You give me your labor, and I will guarantee that as long as you work here, I will give you every opportunity-through either career advancement or training-tobecome more employable, more versatile. 

Comments

[Jessica Lee]

thanks for this post - i liked!

i tend to see employees at the max + having to do lump sum increases/awards in mostly "para-profesional" and administrative roles. i tend to lean towards them being overpaid but in order to retain them, we've gone this route. whether they are underutilized... well, the thing is, i think it can be a bit harder to find ways to stretch and develop these folks, particularly when the individual is a career admin or a career para-pro in whatever their given field might bee... and the role can only be taken so far, if that makes sense. i don't know if i'm being terribly narrow in saying that though.

something interesting i've encountered recently though - with employees who are at the max and are receiving a lump sum increase/award... the communication that goes along with that and ensuring that they understand that their base pay remains unchanged - and that any future increases are based on the base salary. so, if you're capped out at 50K, and we give you a lump sum of 4K, your base is still 50K and future percentage increases would be based on that. we're not going to add your 50K and 4K and then give a percentage increase based off of 54K... it defeats the whole purpose of having a range.

yeah... had to have that conversation a few times believe it or not.

[Totally Consumed]

Your post underlies the importance of tying Training and Develop, Employee Relations and Compensation together, as specialties, when it comes to performance management.

I also love your frank, straightforward approach; "Want to earn more? ... then figure out how to bring more value to your (or any) employer." Well said.

[Ann Bares]

Jessica:

Thanks for the thoughts. I agree - the decision to remain in a single role for your entire career is indeed an income-limiting decision, and needs to be understood as such. I do like the idea of the lump sum in these situation though, because it allows us to recognize and reward those who perform well in their role (including those who "keep the lights on", as covered in a previous post).

Totally:

I like your point - performance management, if done well, really can become the glue that ties T&D, ER & Compensation together. Thanks for the comment!