Employment Q & A

The following questions and answers are from the most recent Workplace Dilemmas and Remuneration Remedies columns which run in alternate issues of Employment Today. If you have a question for either of our experts, send us an email.

Workplace dilemmas

Fallout over extra leave
We’ve just recruited a couple of new people into key positions and they’ve both negotiated an extra two week’s annual leave. What’s the best way to deal with the fallout when other staff learn about this?

If the roles are key positions then clearly they will be expected to contribute significantly more than many other roles. If that is the case, then the level of experience, contribution to bottom line, etc could potentially be used to justify providing greater remuneration.

It is assumed that you have negotiated a higher remuneration package to meet the market. If that is the case, do you need to review the remuneration of your current key talent to ensure that their remuneration reflects their contribution to the company and to enable their retention?

Where you have chosen to pay additional remuneration, in the form of annual leave (it is part of your overall remunerations costs after all), what is the additional value of the leave? Add this to the other remuneration being paid to the new staff. How does that now compare in terms of the total remuneration of existing key staff?

A number of organisations are looking at ways to provide additional benefits to staff, without necessarily increasing total remuneration costs. One way of doing that is to allow staff to purchase additional leave from their salary.

If other staff learn about the additional leave provided to new staff, and provided the total value of their package isn’t significantly greater, then you could explain the additional leave as a salary sacrifice for more leave and that the new staff are not receiving more in relative terms. You could also offer the salary sacrifice option to existing staff.

You could, of course, also advise existing staff that the remuneration of others in the organisation is not their business. Many organisations have policies that prohibit the discussion of individual remuneration—but I have yet to find any organisations where that works!

The major issue though, is how you and your organisation have got into this situation in the first place. Do you have a remuneration policy and guidelines? If so does the provision of additional annual leave (or value) fall within that policy and guidelines in terms of your total remuneration packages? If not, why was it necessary to go outside of the policy?

By remunerating new employees higher than existing employees, you may cost your organisation significantly in terms of unnecessary employee turnover. How do you justify providing additional remuneration to newer staff if your experienced (key) staff leave because they are feeling undervalued?

You should quantify the cost to the business if experienced and performing key staff leave. These costs should include investment in training, productivity loss, lost institutional knowledge and interpersonal relationships.

If your current policy and procedures (assuming you have them) no longer meet the requirements of your organisation, then review, up date and communicate that. If you do not have a policy, procedure, practice line and ranges for roles, then contact a remuneration/benefits specialist to assist in developing and implementing this.

Having said all the above—the bottom line is you determine what people get paid within the organisation. A key part of your role is to ensure that there is a consistent approach across the whole organisation.

Creative accounting
The nature of our work means some staff are called on from time-to-time to work weekends or evenings. They take time in lieu but I’m concerned that one or two people may be somewhat over-generous in adding up their overtime hours. What’s the best way to ensure this doesn’t happen?

There are a number of ways in which you could monitor hours worked. You could introduce a time sheet regime that requires a manager to sign off on additional time worked.

If the manager is accountable, then you may avoid employees claiming more than they are due. You could also introduce some form of automated time keeping.

Alternatively you could develop a standard time that a job should take. You could then set a time for each job and advise staff that overtime or time in lieu will only be paid for that period of time.

If you have reason to believe that some staff are dishonest and falsifying company records when claiming time, you may have to set up a monitoring process specifically for those individuals. If it found that they are falsifying company records then your code of conduct or disciplinary procedure will dictate the actions you should take.

Alternatively, you could provide a general reminder to staff that only time worked should be claimed and if it is found that inaccurate claims are being made, disciplinary action will occur.

This draws a line in the sand and lets people know that you will be monitoring from now on. Any one caught falsifying records after that should be dealt with accordingly.

Healthy employment relationships are built on two-way trust and respect. Make sure you have your facts right before potentially damaging those relationships.

—Answers by Karen Boyte, HR manager for TrustPower in Tauranga.

Remuneration remedies

Business confidence and GST are up, unemployment and tax is down and the labour market is on the move—just. So how should employers respond to wage and salary increase demands in 2010 as well as keeping employees engaged?

Are zero increases a thing of the past?
The incidence of organisations budgeting zero increases in 2010 has dropped dramatically when compared to 2009—down to 3.9 percent of organisations.

Most employers realise that there is little appetite for such strong measures in 2010, especially as the market begins to move. Therefore the median budget forecast of 2.5 percent (March 2010) supports that most organisations will be providing increases in 2010.

Are many of the organisations which froze pay in 2009 planning ‘catch up’ on salaries this year?

Very few organisations are in a position to do any ‘catch up’ this year, however smart organisations will seek to identify key employees and focus their spend on retaining their core talent and critical roles to ensure they do not fall behind the market.

In these cases, we may see a more generous portion of the budget distributed to these employees as a form of ‘catch up’ and part of a retention strategy.

With the increases in GST and the anticipated increases in CPI in the coming year, are employers planning to budget more to compensate employees in some way?

Apart from those organisations where pay increases are directly tied to increases in the CPI—ie, wage negotiations—very few organisations will be planning to increases salaries to compensate for these changes.

Although CPI is expected to peak at approximately 5.9 percent in the coming year, it is acknowledged that this will be short-lived and there will be few organisations who are able (or willing) to increase their fixed costs to this extreme.

How do I manage employee perceptions that tax cuts won’t offset the affect of increases in GST?

It is difficult to convince employees on the face of it that they will be better off as a result of the increase in GST and the reduction in PAYE Tax.

We recommend developing a communication plan as part of your annual salary review process to manage this issue proactively.

Using examples like the tables shown below from the Beehive website, you will be able to demonstrate the impact on employees’ net salaries. We recommend you visit www.beehive.govt.nz.

PAYE on salary of $60,000

For a person earning $60,000pa, paying rent of $150pw

The organisation is expected to return to profit in 2010 however we don’t have the reserves to give large increases or pay big bonuses. How do we manage expectations in this situation?

This is a problem faced by many organisations as they return to health and seek to balance stakeholder expectations. Shareholders require a return on investment while employees seek to be recognised for their hard work and loyalty in the last year.

The key is to maintain the respect and credibility of your employees by developing open and honest communications regarding the business.

It is also important to ensure that as an organisation you fully understand how salaries compare to the external market and seek to direct your remuneration spend to those areas which may be lagging behind.

And finally, we strongly recommend the use of broader recognition practices that aren’t a big cost but are highly effective in rewarding employees for their loyalty and effort in the last year.

In summary

Regardless of what the economic indicators are pointing, the two burning issues facing employers this year are:

• How do I manage employee expectations in 2010?
• How do I afford increases when cost management is still a number one priority in the business?

The balancing of both of these factors will drive organisations responses to the market in 2010.

Ask the expert

If you have a remuneration question you would like Susan to answer, contact info@dsd.co.nz

—Answers by Susan Doughty, director of DSD Consulting Ltd, specialists in remuneration and rewards management.

Subscribe now!

Contact Us