Insights

Salary management and annual pay raise process

Analysis
Published on: June 5, 2020
Subjects:  Surveys and forecasts, Total compensation

The Canada Emergency Wage Subsidy (CEWS) has been extended until August 29, 2020. CEWS pays companies that have experienced a significant loss in revenue a job maintenance subsidy amounting to 75% of their eligible compensation, up to a maximum $847 per employee per week (or an annual salary of $58,700).

Lockdown measures are being progressively lifted, and it is clear that this type of measure will not last forever. These measures are a temporary fix, not a viable long-term solution. On top of that, some businesses have put off discussions about salary management and individual performance management, but nevertheless, these conversations need to happen.

  • Does the organization have the means to go forward with planned salary raises?
  • If raises for 2020 were given before or even during the pandemic, and the organization’s situation has since become less stable, is the organization able to go back on its decision?
  • If raises for 2020 have not been given out, is a salary freeze being considered? How will this impact employees? Will the company risk losing employees?

The first step is to assess the organization’s financial capacity to give out raises. If the organization has been minimally impacted—or not at all—it has every advantage in maintaining its usual practices. But if issuing raises would put your company at risk, it will need to assess its options. Remember that it is best to take a step back before taking action.

Managing annual salary raises in a difficult economic context, such as what we are currently experiencing, requires special sensitivity on the part of employers. Many companies give raises at the beginning of the year, and previously granted salary increases can hardly be withdrawn from employees without eliciting negative perceptions/reactions. In theory, it would be inadvisable to reverse decisions on raises:

  1. Salary raises are part of a mutual agreement, even if this agreement is implicit, between the employees and the employer, with respect to compensation.
  2. Withdrawing a benefit can be perceived as a breach of the employment contract.

Of course, it all depends on the scope of the unilateral change made in a very specific context. The reality of COVID-19 means we have to make difficult decisions. If you have no choice but to cut salaries back to pre-COVID-19 levels, or even lower, keep in mind that your approach in terms of management, communication, consistency, and equity will influence how your employees react to and perceive your actions. A poorly managed change could add to the challenges a business is facing and further weaken it.

Under such circumstances, some employees may:

  • Quit, particularly those who would have no trouble finding a new job (e.g., in the IT sector, the placement rate is still high)
  • Put less effort into their work, or be less productive or less motivated
  • Wait for the economy to recover and then leave the organization
  • Lastly, organizations that have not yet given raises must also consider what they will do in a climate of uncertainty. They may need to take equally drastic measures, such as reducing salaries by cutting hours or simply reducing pay. These decisions are specific to every organization’s context and limitations.

Golden rules

If the business situation necessitates a salary freeze for 2020, a deferral of salary raises, or salary reductions, the following precautions are suggested to manage employees’ perceptions and promote a positive work environment, as well as support employee satisfaction and retention—and to get business back up and running, organizations will need motivated and committed employees.

  • Management should communicate clearly: This applies to, for example, decisions, reasoning and the way raises will be managed in the coming year. Management will need to have a solid case to back up any decisions that have a direct negative impact on employees.
  • Management should keep employees informed of any changes made to the action plan.
  • Measures being implemented should be consistent.
  • All the employees in a given group should be treated equally, and if there are differences between how groups are treated, they should be justified and transparent.
  • The employer should manage expectations and not commit to a specific restart date, but inform employees that these are temporary measures.
  • When some employees in the organization are paid minimum wage, which was raised on May 1, 2020, and other employees are earning a higher wage, management should communicate when the latter employees will receive their raise.
  • Employees should be encouraged to ask questions and share their concerns with their manager.
  • Management should send a positive message by emphasizing the other components of the total compensation package available to employees and that have value in an employment relationship (and from which employees continue to benefit)

“When you can’t go back, you have to worry only about the best way of moving forward.” (Paulo Coelho)

The reopening of the economy promises to be slow, particularly in certain sectors, which we believe will lead some organizations to be cautious in their planning and budgeting of salary raises for 2021.

The PCI – Perrault Consulting 2021 salary forecast report will shed light on upcoming trends. To ensure that the data we collect is as accurate and realistic as possible, our study will be launched later than in previous years, in early July, and the results will be released in the fall.

Read the article on performance management

Have questions?

Our professionals are here to help. Don’t hesitate to reach out to our experts, who can help you develop creative communication and compensation management strategies for navigating through exceptional circumstances to a gradual reopening.

We can also assist you with the pay equity process, which remains mandatory.

We would like to reiterate our commitment to assisting and advising you. Our teams are fully operational and ready to provide the same level of service our clients expect from us

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