In The Workplace

Sometime ago, you wrote about “red circle pay” employees who should be considered possible candidates for retrenchment due to the adverse effects of COVID-19. We’re not planning to retrench our employees, but we have discovered that we have around 20 non-management employees who are receiving salaries higher than the maximum limit of their respective grade levels. We realize that this has created salary distortions and eroded internal equity with our junior supervisors. My question is this: how do we correct the situation?  — September Morn.

When a US police academy sponsored a Best Speeding Alibi Contest, honorable mention went to an exasperated father who was stopped with a load of fighting, squealing children in his backseat. He told the traffic officer: “I was trying to get away from all the noise behind me.”

In your case, you can’t get away from the “noise” behind you as it will continue to hound you unless you correct it as soon as you can. It’s one of the reasons why compensation must remain confidential as a matter of policy for all organizations. However, this should not be considered a license for you to perpetuate the “red circle pay” in your salary structure.

The sooner that you can correct it, the better for your organization. But first of all, what’s the meaning of a “red circle” salary? Simply, it’s the pay of workers who have reached, if not exceeded the ceiling of the company’s salary structure.

What’s the cause of a “red circle” salary? Red-circling happens when a company gives across-the-board pay increases to employees in compliance with company policy or a Collective Bargaining Agreement (CBA). Many in management consider such policies counterproductive because they give equal pay increases to all employees regardless of their work performance.

But not exactly, according to one “senior official” of the National Trade Union Center (NTUC) — Philippines. He says: “It’s the direction of the trade unions. Increase and increase alike; everyone is similarly affected by inflation. One for all, all for one. Performance or productivity compensation will come on top of that.”

In other words, an across-the-board salary increase is given to all employees to account for inflation. Merit increases due to excellent performance should come in addition to this across-the-board increase.

NTUC considers itself a“a free, independent, democratic trade union center, with members in all industries and sectors, including those in the informal economy and migrant workers.” Many of their union members work in export processing zones.

So, how can management solve “red circle pay” to avoid salary distortions, ensure that internal equity is maintained, without violating the CBA? It’s easier than you think. As long as your company is attuned to the latest industry salary and benefits survey and employee morale, then you can perform the corrective measures as follows:

One, update your salary structure once every two years. This must include all pertinent data from the latest industry survey. If you’re in the banking sector, don’t even think of adjusting your pay structure to meet the level of the telecommunication industry. You must focus on the dynamic changes in your own industry, as most people are likely to seek work with competitors. It’s less likely for employees to move to other industries, unless their skills also apply to the other workplace.

Without a dynamic, formal salary structure, it would be difficult for you to understand the problem or implement any corrective measures.

Two, re-classify “red-circle pay” workers. You can promote non-management workers to the next job grade. Expand his responsibility by assigning him to meet the requirements of the new job. If the worker has reached the ceiling with no room for re-classification, try to offer a promotion as an entry-level supervisor.

In the event that the non-management worker refuses to accept the promotion to supervisor due to loss of overtime premium pay or simply to avoid managing people, then you can force the issue by promoting the person just the same but to a “staff” supervisory function and not a “line” function where one must manage a team.

Also, take comfort in the thought that transfer is a management prerogative.

Last, consider the work performance of all “red circle pay” workers. It will help level the playing field for workers, especially the new entrants in the next higher job grade level. Ramon Segismundo, former Senior Vice-President for Human Resources of Meralco, prescribes a solution:

“For a superior performer, I think we can live with the salary aberration. For an average performer, we can start to slow down or even freeze the amount of future increases. For a below-average performer, we have to talk to the red circle case and identify options. Nevertheless, in a pandemic, red circle situations raises the proverbial red flags.”

Organizations must establish and maintain all basic policies and procedures to ensure a robust and fair compensation system to all workers similarly situated. This includes a dynamic salary structure, job evaluation program, and a performance management system, among others. This can only be done with the active and primary role of the HR department that must be attuned to industry management best practices, including all social and labor legislations.

In addition, the HR department must conduct an annual employee morale survey to help understand the gaps in corporate management and at the same time to avoid employee issues arising out of inequity in the payment of salaries. Without becoming aggressive or defensive, HR must immediately correct negative employee perceptions about compensation and benefits. In many cases, this can be done by the HR manager and his support staff without feeling uncomfortable, going overboard, or even from deviating from accepted two-way communication styles.


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