Should Managers Know Their Subordinate’s Pay?
New managers or when deputy managers are promoted to full managers, have a popular question about their authority. They want to know whether they are authorized to know their subordinate’s pay.
To answer this question, we need to know who is in the role to (a) recommend (b) moderate (c) approve salary adjustments and bonuses.
When Do Managers Want To Be Involved in Making Salary Decisions?
Managers felt that they should be given the tool to motivate staff. They want to be able to decide (a) give raises to staff upon successful completion of their probationary period (b) award annual increment (c) make counter-offer to a staff who plans to leave the company (d) make salary adjustments for subordinates the manager wants to keep.
Variations in Practice
Broadly, there are 2 types of organizations (a) the traditional organization where the human resource function is an administrative function and there is no separate compensation and benefits function (b) the modern organization where the human resource function is strategic function and there is a separate compensation and benefits function.
Broadly there are 4 types of situations the Human Resource professional found himself or herself in (a) Managers are given the authority to recommend the quantum or percentage of raise through the confirmation review, performance review, re-classification review or counter-offer for their subordinates (b) Only senior management staff have this authority.
Managers Are Irrational Too
Managers are people too. Naturally, they all will act and react differently. Here are some observations of common behaviors that manager exhibit:
(a) Everyone wants to be the good guy, especially to be the person who award the salary raises. The impact of the increased business costs will be the last thing on the manager’s mind.
(b) Nobody wants to tell the subordinate that he or she is not performing or does not fit in with the team nor is willing to terminate the poor performing subordinate’s services. They will rather pass on the job to the Human Resource Department.
(c) If the company does not practice manpower budgeting, departmental budgeting or project costing, nobody is going to bother. They will wait for an initiative from the Finance Department or the CEO.
(d) If it is not part of the organizational culture, most managers would not document their work processes; make a continuous improvements of their processes; look at ways to increase productivity. They probably will do quick fixes.
(e) No manager evaluates the return on his or her department’s manpower costs.
(f) Some managers will disagree with the Human Resource Department’s actions to stop or reduce the salary adjustments.
(g) Sometimes, the department manager does not even know how to charge the customer for additional or special services. This includes developing a manpower charge rate.
HR professionals always make the assumptions that (a) Department heads are able to and will manage their department’s costs (b) Department heads are unbiased when it comes to rewarding pay increases (c ) Department heads are good at identifying employee’s strengths and enabling their capabilities (d) Department heads are good at complementing the weaknesses with strengths of different team members (e) Department heads are able to assess the subordinate’s performance correctly.
Do Your Checklist
Before you decide on the answer to the question on whether managers should know their subordinate’s pay, you should check on your understanding of the organization that you are working for by asking yourself the following questions.
(a) Does the organization have more than 70 people? Are all the employees in one location?
(b) Does your organization do annual budgeting? Are all the departments involved?
(c) Is there a Compensation and Benefits section; otherwise is there someone with the specialist skills in the organization?
(d) If the departments run projects, do they do project budgeting and costing?
(e) Do you have job grades and a salary structure? Do you have a talent framework tie closely to the job grades? Do the salary ranges or bands break into different job levels with qualifications, experience, competencies, traits indicated?
(f) Are written compensation and benefits policies in place? Is training provided to all management staff? Are they practicing it correctly?
(g) Does the organization identify the key jobs, difficult to find jobs, redundant jobs, low and high paying jobs, the support or backend and revenue generating jobs, the jobs that can be outsourced?
(h) Does the organization apply wage (for example piece-meal rated or hourly rated) and salary (for example monthly rated) to the correct jobs?
(i) Currently, how are employees paid with respect to their jobs, work experience, education and training against the salary range or band?
(j) Does the organization have policies for promotions and demotions; acting appointments; jobs that require travel; deputy and full managers; change in careers (for example a Finance personnel taking up a Sales position)?
(k) Do employees feel that they have a sense of job security?
(l) Is the company’s management working towards a family like participative culture?
If your employer did not pay you for working overtime but either expects you to accept it as part of your job or just quietly refused to hire extra help, then your employer is being unscrupulous. What does that tell you about your employer?
What Drives Salary Adjustments?
When an employment contract is signed, there is an agreement to compensate the employee with a monetary sum in return for his or labor and time.
Over time, that value of that monetary sum is eroded by inflation. Salary adjustments should be made to compensate for this loss. More often, this is not the case.
What often drive salary adjustments are:
(a) Manager attempting to be the bearer of gifts
(b) Manager attempting to award performance but this is subject to personal bias, including favoritism.
(c) Manager attempting to salvage the situation of losing a headcount to do the work.
The signs are:
(a) Discretionary bonuses.
(b) Off cycle salary adjustments.
(c) Merit salary adjustments.
What Are The Impacts?
The 2 reasons why a lot of Managing Directors and Human Resource professionals frown on letting managers decide on salary increases are: (a) they want to have a total or better control of costs (b) they are in a position to see the distribution of manpower costs (salary information) across the entire organization.
You would imagine that the best solution would be just to restrict salary information to as few people as possible.
So What Is The Answer?
The truth is that the current method of managing compensation is not really working. SEMCO SA has a working model where (a) market pay data as well as everyone’s pay is made available companywide (b) the employees set their own salaries (c) company financial information is made available to everyone, so that everyone knows what are the revenues and costs (d) the employees also decide whether they need and are willing to pay for the services of a fellow colleagues and that has helped kept business costs in check.
The Politics of Salary Information and Management
Unfortunately, most companies are not managed the same way as SEMCO SA. In most companies, salary information and management is a sensitive area. It is seen as a sign of power. Sometimes it is also an area of fierce contention.
If human resource professionals are placed in a position to release salary information to managers, it should be first with official from top management. They will have their personal perspective and opinion. Second, salary information should be restricted by employee group and access to information should be given only to heads of cost centers. Third, if possible, salary offers should be negotiated by human resource professionals; and similarly with salary adjustments. If not, management staff has to be instructed in (a) the salary internal equity limits for salary negotiations (b) the salary budgeted limits for salary adjustments (c) submission of requests for manpower requisitions (new positions and replacements); job reclassification, promotion, demotion, transfer, overseas assignments.
After Thoughts: Flaws
There are flaws in the organizational compensation system, especially when it is a system where there is a great disparity between how much person at the top and the bottom is compensated; and when the person at the top has the biggest say in his or her own compensation package.
Compensation Specialists are in a position to recommend variable and non-guaranteed compensation components to be part of the compensation package for the people in the higher management layers.
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