How NOT to Do a Compensation Change
Early this month, United Airlines announced their decision to suspend the implementation of their new reward program that involved a lottery system. With the new plan, employees would enter a lottery system that provided them with the potential of winning big prizes if they had acceptable attendance records. According to the management, the new system was supposedly better and more exciting.
Unfortunately, this plan didn’t go well with many employees. They saw the system as discriminatory and closing out potential beneficiaries of the monthly bonuses. For instance, the program was designed to reward those workers with a perfect work attendance record. Furthermore, it was to replace a monthly bonus program that rewarded about 24,000 workers of different categories. Using the lottery system, only 1,361 workers would get a reward, with the top prize reserved for one candidate only.
So, the workers signed an online petition which the company took to reconsider their decision. Well, as the company reviews their employees’ reaction towards the new incentive program, we can also draw a few lessons from the incident on how NOT to do a compensation change. Here are 4 takeaways:
1. Don’t implement sudden changes without involving your employees
Not many employees appreciate surprise changes. Their reaction could be even worse if these changes touch on their wages. Such a decision is not only unfair but has the potential to disrupt the livelihoods of your employees and their dependents as well. For this reason, your workers are likely to resist the change.
The best approach is to engage the employees and listen to their views. Had the management at United Airlines considered the views of their workers, chances are that the confusion could have been avoided. Additionally, you should give a grace period to allow the employees to plan their spending, especially where a pay cut is involved.
2. Don’t introduce an unpredictable pay structure
A lottery system relies on chance. One cannot tell whether they’ll qualify for a prize or not. Unfortunately, every employee wants to know how much they are likely to get on payday. Their pay is among the factors that motivate them to do their work. Besides, having a clear idea about their pay enables them to make financial commitments that they are sure to meet.
Consequently, it would be very inconsiderate to introduce a pay structure that makes it hard for one to estimate how much they will be paid. Even where variable compensation is involved, such as bonuses and commissions, it’s important to have pre-agreed percentages. This way, your employees can estimate how much they will be paid with a fair degree of accuracy.
3. Don’t adopt discriminatory compensation plans
The employees at United Airlines couldn’t accept the fact that the new program would close out approximately 95% of those who were already receiving bonuses under the previous plan. Besides, the set conditions seemed impractical. Clearly, if you have the bulk of the workforce getting nothing while a select few pocket hefty bonuses, there will be grumbling.
4. Don’t disregard labor laws
It’s good business practice to first crosscheck and confirm whether your compensation changes conform to the labor laws applicable to markets you operate in. Failure to do so may cost you a lot of money in the form of lawsuits and fines by the authorities. To be on the safe side, always work with a qualified legal advisory team to make sure that your changes don’t violate any law.
The need for a compensation change will arise at some point of running your company. However, you should use an approach that will see your workers embrace and support the changes. Otherwise, it’s a subject that can cause serious disruptions that could also be difficult for your business to recover from.