What’s the best way to lower pay?

by Evil HR Lady on December 9, 2014

My employer has asked me to create an incentive program that includes pay decreases for failure to meet the standard and bonuses for exceeding it. I need some supporting information because the Salaried employees will not be happy with a salary decrease. Where should I look?

I have no clue and your Googe skills are as good as mine. But, let’s chat a bit about what’s going on. Is your boss openly hostile towards employees on a regular basis or is he currently really ticked off at someone?

I ask because beating your employees with salary reducing sticks isn’t the way you increase performance. It’s the way you get people who are bitter and angry and even if they are performing at a high level, they start looking for new jobs. And, to be clear, the people who leave first will be the highest performers, even though you’ve given them a bonus. Why on earth would you want to stick around in a place where your base salary could be cut?

Now, I’m not some big softy. I’m not opposed to firing poor performers. But, I am opposed to pay cuts. I realize that seems a bit contradictory, as losing your  job is a heck of a lot worse than taking a 5 percent pay cut. After all, 95 percent of a salary is better than 0 percent. But, people don’t generally fire for a bad quarter, or  one messed up project. They tend to save firing for egregious cases and only after working carefully with the employee to attempt to bring that person up to speed. (To be clear, almost all jobs in the United States are “at-will,” which means you can fire someone for any random reason other than those prohibited by law, but most people don’t.) Most companies use 60 or 90 day performance improvement plans.

I suspect that performance in this case isn’t severe enough for firing, which is why the desire to lower salary. It sounds a bit noble, but it’s not. People will take it very hard. They will not like it. So, here’s what you do instead:

  • Set your base pay for what you’re willing to pay the low performers
  • Give bonuses based on performance. Higher performance equals a higher bonus. Lower performance equals a lower bonus.
  • Current employees  maintain their current salary.
  • Decide what level of performance should result in termination

Clear? The criteria need to be straight forward, easily measurable, and religiously tracked. Giving an employee a chance to do better is far more likely to result in higher performance than punishing the employee for doing poorly.If you want the business to succeed, you need employees that are willing to work hard. Ones that are unsure of what their salary will be tomorrow will not work.

If you do go with this plan, make sure the lowered salary is listed in the offer letter, so that new hires understand from the beginning that their bosses aren’t interested in fostering success.

{ 3 comments… read them below or add one }

Suzanne December 9, 2014 at 8:23 pm

“If you want the business to succeed, you need employees that are willing to work hard.-Bingo! And I can tell you, as an employee, when I’m not given the tools to succeed (training, goals, expectations) and am obviously not valued, I won’t go the extra mile, or yard.

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LTMG December 9, 2014 at 9:06 pm

Ms. Lucas is right about the dangers of reducing salaries. If one must go down this path, then better to provide no merit salary increase in 2015 but to replace it with a performance oriented bonus plan that encourages both correct behaviors and the results the company wants. Encouraging employees to compete against each other is absolutely the wrong thing to do, and will likely lead to very disturbing behaviors.

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Jeanne December 10, 2014 at 2:21 am

I vote openly hostile on a regular basis. Who does this? He’s obviously only happy if he makes others unhappy. Let me guess: Everyone will be classified a low performer.

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