
In The Workplace
By Rey Elbo
Our factory is spending a significant amount in each of the past three years on overtime premiums. Management allows this in order for our minimum wage earners to gain additional income, pending a review of our salary structure. It’s a temporary arrangement with the labor union pending the signing of a new collective bargaining agreement (CBA). Is this good or bad? — Capricious.
If a growing object is both fresh and spoiled at the same time, chances are, it’s a three-year-old child. The same thing could apply to your people management strategy. Three years is too long for you to spend on reviewing the salary structure. In most cases, the review should be done between six months and a year.
Therefore, the root issue is not the cost of overtime but the delay in coming out with a new salary scale. If you drag your feet in updating it, there’s a chance your organization will be spending more for overtime than needed. At any rate, it’s not the only cost you should worry about.
If you factor in the cost of utilities like electricity and water, the need for security guards and other related expenses, then that means you’re spending a lot of money beyond the overtime premium.
You need to fast-track the review and implement a new pay structure in order to stop paying excessive overtime.
GOOD OR BAD?
I’m not sure what sort of agreement you have with the labor union, but I am worried that the union holds a veto on the new salary scale for its members. What if the union refuses to go along?
Therefore, my answer to your question on whether such “temporary arrangements” are good or bad, is, without hesitation, that it’s bad for both labor and management. The parties cannot be expected to agree to a temporary CBA or some type of similar arrangement. If no new CBA is in place, then the old CBA is in force.
The solution is none other than coming out with a new pay scale. And you need to move fast.
PAY STRUCTURE
It’s not easy to come up with a new salary scale. There are many requirements to cover. If your human resources (HR) function is managed by seasoned professionals, they might eventually come around to creating a dynamic and successful salary structure with an approach like this:
One, decide on a long-term pay philosophy. Must it follow industry or market rates or both? Or should you simply adjust for inflation? Whatever you choose, you must be able to decide based on current trends and the imperative of motivating and retaining great talent. For example, some companies determined to win the war for talent would be happy to pay as much as a 75% premium on current market rates. Some adopt an above-average policy of 10-20% above market.
Without a philosophy, you’ll simply be guessing, while saddled with high attrition rates, which is costly. It is crucial to have a reasonable and dynamic pay philosophy in place for the long haul.
Second, create, review, or improve job descriptions. This can only be done via a job evaluation, performed every five years. The objective is to determine how jobs should be priced at the various grade levels — defining which jobs should get more pay. This is done by determining the job content or weight relative to their significance in achieving corporate objectives.
Based on the result of a job evaluation, you have to decide how many grades to have. Ideally, it is best to have few grades where performance determines the rise through the pay scale. In a unionized environment like yours, it is best to implement a meritocratic system for pay hikes, rather than on across-the-board salary increases as provided for in the CBA.
EMPLOYEE PARTICIPATION
Compensation management is always a sensitive and emotional issue, union or no union. You may have the best job evaluation program done by expert consultants, and may have an equitable and competitive pay philosophy, but some employees might remain unhappy.
To avoid this, it is advisable to include union representatives in a task force that will work with management representatives on job evaluation, and in conducting industry salary surveys. The idea is to achieve co-ownership, in order to minimize the perceptions that management made bad decisions.
Employees in the task force can help communicate and justify any such pay program that ensues. This is difficult to accept for many command-and-control managers. If management succeeds in doing so, it becomes easier to convince most employees.
Have a chat with Rey Elbo via Facebook, LinkedIn or Twitter or send your workplace questions to elbonomics@gmail.com or via https://reyelbo.consulting.