While recruitment and retention continue to be worrisome management issues, wage and benefit equity is rapidly becoming a critical factor. Unfortunately, in an over heated rush to act decisively, managers may shift into survival mode without giving much thought to the long-term consequences of a short-term financial fix. The following examples illustrate my point.

Manufacturer

            The president of a large, growth-oriented company with multiple facilities located worldwide personally encouraged employees to seek increased responsibility with the promise of promotions and bonuses for those willing to take on more responsibility.

However, those who did so were hard pressed to predict how they could earn future bonuses and pay raises. Sometimes financial rewards were based on individual performance. Other times incentives were tied to sales or safety or customer satisfaction.

Several recently promoted department heads, who had relocated to a newly constructed facility at the president’s urging, were left out of the bonus awards with no explanation. The word got around to avoid start-ups because the company didn’t give bonuses or pay raises until a new facility turned a profit.

The employees at one of the best-run overseas subsidiaries were expecting a big bonus because they had been tops in every category in which a bonus had ever been awarded. The regional VP and his management team were certain they had all the bases covered.

But it was not to be. That year there were no bonuses or pay raises. Instead, the patriarch of this family-run business made a multimillion-dollar, tax-deductible contribution to his favorite charity. It didn’t take long before there was a lengthy line of long-suffering high achievers seeking employment elsewhere.

Health Care

            As the competition for nurses heated up, the shortsighted executives at “progressive” hospital came up with a revolutionary cost saving strategy. They proposed to freeze the salaries of their nursing staff and, in return, provide 100% health insurance coverage as a benefit. To their way of thinking the hospital would come out ahead financially and the nurses would be “tied to the organization for the long term.”

The hospital’s leaders rationalized that if they gave the nurses a more generous health insurance plan, their staff nurses wouldn’t want to (make that couldn’t afford to) seek employment elsewhere.

This scheme also included a cash sign-up bonus to attract nurses from outside the community. This additional monetary inducement, coupled with the increased health benefits, was supposed to resolve the nursing shortage.

It didn’t. Instead, it made the situation worse. The nurses felt less loyalty to the hospital, not more. And, as professional caregivers, they strongly resented being treated like a commodity. As the true purpose of this “retention” scheme came into focus, morale among the nurses declined and many left—worsening the shortage.

Public Service Provider

A charitable foundation had built a reputation as a well-run organization. It had little difficulty attracting dedicated employees and top-notch administrators who willingly accepted lower salaries in exchange for an opportunity to serve their community. 

That is until the newly elected board president convinced the other directors to set their sights higher. According to his reasoning, the organization had to attract a higher caliber staff—and to do so, they must pay higher salaries. According to the salary and benefit figures he introduced as “evidence,” this would mean a 20% increase.

Despite warnings from the executive director and the accountant, the board, pushed by the president, forged ahead. The new salaries were set, and the benefits costs were calculated—suddenly the board found itself facing a huge budget deficit.

Again, the president suggested a business-like solution. They would still raise the salaries, but to balance the budget, they would simultaneously reduce the agency’s contribution to the employee pension fund and health insurance premiums. 

These efficiencies delighted the accountant but didn’t set well with the employees.  Higher income taxes coupled with added premium rates and lower retirement funding resulted in a net loss for all employees.

The executive director and several key staffers resigned in disgust. By making salaries an issue, the board had discounted the staff’s motivation to serve. According to the departing director, “They took away the specialness of working here.”

Following this unfortunate episode the board split into opposing groups: those who supported the president and those who worked against him. Meanwhile, more employees left.

Several lawsuits for back wages and claims of unfair dismissal were filed, and sadly, the pool of skilled volunteers all but disappeared. The greater good of the community will no doubt suffer.

Predictable results

People tend to act on what they believe to be the truth. Once folks at the operational level perceive that the people upstairs only care about the bottom line, it doesn’t take long for dedication and loyalty to be replaced by ambiguity and inconsistency—the building blocks of dysfunction.

What is truly disheartening is that from then on subordinates will expect to be mistreated. And unless management reforms the way equity decisions are made in the future the organization is doomed to fail. But all is not lost. You’ve just been given a risk-free opportunity to practice with somebody else’s problems. Who knows, someday you may find yourself in a similar situation and what you learned not to do from the above examples here could be helpful