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December 15, 2017

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The Top of the Pay Range Blues

THE PROBLEM

I recently received this email message from a storeowner: "I am the owner of a store with 40 employees who do mostly unskilled work. Many of them have been with us for more than 10 years and they have reached their maximum earning potential with us. My concern is that we have 'trapped' them in their jobs by treating them well, paying them decently for this type of work, and providing them with medical and dental insurance."

Most organizations have fixed pay grades that specify the amount of money that can be paid to employees in each position. The pay grades have a minimum and a maximum salary. Typically new employees start at the bottom of the salary range and gradually move up as they receive pay increases.

The purpose of the pay grades is to make certain that the organization maintains good control over its total labor costs. The pay grades also help to maintain internal pay equity. For example, supervisors, understandably, become upset when their direct reports make more money than they do.

But what should organizations do when their loyal, high performing employees reach the top of the pay grade? Typically, these employees continue to work with no pay increases except, perhaps, cost of living increases.

The problem is that these top-of-the-pay-grade employees may become frustrated and lose their motivation. They feel trapped.

HOW TO HANDLE THE TOP-OF-THE-PAY-RANGE BLUES

  1. Set Clear Expectations for Applicants

    Be open and honest with job applicants. Tell them that when they eventually reach the top of the range, they will not be able to earn more in that position. Tell applicants that while there are limits to the pay they can earn in the position, they will acquire valuable training and experience that will be useful to them in their career. These employees, therefore, can join the organization with their eyes open.

  2. Add Additional Responsibilities

    Another option is to offer these top-of-the-range employees additional responsibilities. For example, assign them the job of trainer for new employees to the department. Or ask them to work on special projects. If you've given them greater responsibilities, you can feel justified in offering them more money.

  3. Move Them Around

    Move these employees to other parts of the company and train them to perform other, higher paying jobs. If they are committed to the organization and have provided value, give them the chance to grow within the organization.

  4. Offer Longevity Bonuses

    Provide selected top-of-the-range employees with bonuses twice a year (e.g., December and June). This is not a raise and, therefore, would not increase the cost of some employee benefits such as company contributions to the 401(k) plan.

  5. Encourage Them to Leave

    No one benefits from unhappy employees. It might be best for both the organization and the employees at the top of the range if you encourage them to leave. Tell them that because of their organizational knowledge and loyalty you would hate to seem them go, but there is really only so much you can pay for that job. Offer to provide them with excellent references.

Many organizations adopt this strategy. To maximize profits, they hire the junior-most employees who can handle the work. As their pay increases, they replace them with other low paid employees. It doesn't sound fair, but after all, it's business.

CONCLUSION

Try your best to keep top-of-the-range employees, but sometimes it's best for all involved to just part ways.

- Bruce L. Katcher

Bruce Katcher, PhD is President of Discovery Surveys, Inc. His firm conducts customized employee opinion and customer satisfaction surveys. Learn more at www.DiscoverySurveys.com. He can be reached at BKatcher@DiscoverySurveys.com or 888-784-4367.