Having moved to Seattle from Hawaii, I can’t help but wish for snow during these cold winter months. I love watching the snow fall and seeing the frost on the leaves. Most frozen things may be great, but there is one thing most people hope never freezes – their pay!
Freezing employee pay can help keep costs under control and ensure fair pay to the market, but it can be one of the most difficult things to communicate to an employee. It is important to work together during these situations, because after all, compensation is a team sport. Everyone from executives and HR to managers and employees have a role in compensation. Let’s take a look at an example of everyone’s role by walking through one of the scariest compensation situations, freezing salaries.
Executives and HR Develop Compensation Strategy
Working together, executives and HR set the tone for compensation in your organization. They decide what to reward (performance), what to emphasize (skills), and how to beat out the competition (fair market pay). HR guides compensation planning and performs a market study to determine what is best for the organization.
With the plan in place, executives and HR then decide how to ensure the plan will be carried out (policies). They set up guidelines for pay (ranges). This is where the big F question comes into play: freeze pay or not? What will your organization do when employees hit the top of the pay range?
- Doing nothing can be tempting, but tends to be a lot worse for a company as the dollars add up.
- Freezing base pay without offering a performance-based incentive can be a flight risk.
- Freezing base pay with a performance-based incentive works for some, although it necessitates clear performance objectives and strong communication skills.
HR & Managers Communicate Compensation
HR gives managers the right tools to successfully communicate to employees. In a situation where you are freezing pay it is especially important to have the appropriate messaging. Freezing employee pay, if not communicated correctly, can bring down employee morale and increase turnover.
Managers typically are responsible for sharing compensation specifics with employees that they work closely with. They are the ones most likely to know how an employee will react to the news. It is important to give managers talking points that will provide insight into what employees care about. If managers can successfully talk about pay with employees it can be beneficial for retention, motivation, and engagement.
Employees Work Through Their Options
Once the employee gets the chilly news, it is important for them to have the opportunity to ask questions about compensation. They should understand why the company decided to freeze salaries. HR and managers should properly communicate the options with employees. HR and managers also need to communicate with employees any incentives that the company may be offering while salaries are frozen. This is the point where employees get to differentiate themselves by communicating clearly about what will continue to motivate them, even in a frozen situation.
In most organizations, the budget is finite. Freezing base pay is a reality for many organizations. In any comp situation it is important for all roles in the company to work together; this is especially true in these more difficult situations like choosing to freeze employee pay. It is much more rewarding when you accomplish business goals as a team. Modern compensation involves making the compensation plan a win-win for both employers and employees.
Want to find out more about your role in compensation? Download this ebook, Making Comp a Team Sport.
PayScale Team guides HR and managers through the merit cycle without the need for complex spreadsheets. See how Team improves communication about pay between managers and HR.