Full Disclosure Government
By Jim Fox and Bruce Lawson, Fox Lawson & Associates, A Division of Gallagher Benefit Services, Inc.CompDoctorTM: Solutions? Of course there are solutions! You and/or your employees may not like them but there are ways to deal with your problem. It is like having your doctor tell you (not you personally but the proverbial “you”) to lose 40-50 pounds. Unfortunately, the options involve changes from the way things have always been done or the things we like to do such as giving our employees more money (and we know how uncomfortable that makes people).
Before discussing the options, one first needs to understand why this is now a bigger problem than it might have been a few years ago. Probably the biggest reason is simply that many public sector pay plans have such a limited vertical spread (often a ratio of 5:1 between the highest and lowest levels of the organization), as opposed to a broader vertical spread that may have existed at one time (such as a 10:1 ratio where the highest paid employee made about 10 times as much as the lowest paid employee). Many agencies are coming to the realization that assuring fixed percentage increases upon reclassification and/or promotion may no longer make sense. One occupational group that has been significantly affected by this compression is public safety—especially where the overtime-eligible positions overlap with the exempt level positions. This has created a significant problem for many organizations since those eligible for overtime are often reluctant to give up those positions to
At the same time, organizations are facing severely restricted budgets that have resulted in pressures to reduce compensation levels and/or increases in compensation costs. As a result, managers and employees, when faced with restrictions on granting compensation increases, have turned to the other tool that was readily available: the job classification system. While we know that manipulation of the classification system is anathema to most, we do know that there are a few among us who will readily “game” the system in order to give an employee a pay increase.
Now that we know why we have a problem, let’s talk about the options. In a nutshell, we are seeing more organizations do the following:
Reclassification: We have seen a rapid increase in the number of requests for reclassifications within organizations that have narrow job classification structures. Many of these requests are based on the fact that employees automatically receive a minimum five percent increase in pay upon reclassification. In order to discourage reclassifications, one option is to not adjust compensation if the employee’s current rate of pay is within the salary grade for the classification into which they are being reclassified. The rationale is that they are already being paid at the appropriate level and reclassification should not be justification or basis for granting a pay increase. This will also tend to reduce the number of requested reclassifications.
Alternatively, assuming that you have an abundance of cash on hand and are a particularly generous employer, you might also consider simply raising the pay of the other employees in the class so that you are able to maintain the desired internal alignment. This is often a fairly expensive solution but one that has been used successfully by employers.
One of the consequences of a more compressed pay structure is that organizations have had to flatten their organizations resulting in elimination of one or more levels within a job classification series and a broadening of the span of control of resulting supervisory and management level jobs. At the same time, there is still a degree of overlap between the salary grades for subordinate level classes and those job classifications to which they report.
Consequently, an employee in a lower level class may actually be paid substantially more (in actual dollars) than an incumbent in a supervisory or management position to which they report. Consequently, when an employee is promoted into a higher level class, there is the potential that the new employee could potentially be paid more than other positions at the higher level. In order to prevent further compression, organizations are now recognizing that a fixed percentage increase upon promotion may not make good business sense. If the employee is already being paid at a level that is within the grade for the new class, then any promotional increase should be based solely on how the employee’s current pay relates to others in the class in order to maintain internal alignment.
The solutions discussed above are all economically based. However, there is a structural option to both the reclassification and the promotion issues and that would be to simply restructure your overall pay plan to reduce the number of salary grades and broaden them to reduce the number of distinct levels from the lowest to the highest within the organization. This would reduce reclassification requests and make it clearer that promotions reflect a substantial increase in responsibilities.
While the options available are somewhat limited, they do offer you a way out of your dilemma, although there could be consequences in terms of employee reaction to these changes. Nevertheless, only you can decide if the cure, relative to the disease, is worth the effort and the resulting side effects. (Please excuse the mixed metaphor.) Hopefully, our comments will provide you with information that will be useful to you as you attempt to control your salary and benefit costs.