Peer-to-Peer: My big fat wage crisis

Written by PROFIT-Xtra


“I own and operate a retail chain with three locations in Ontario. I pay my staff an hourly rate a bit above minimum wage, but once in a while, if someone blows me away with her incredible selling or service, I bump up her rate by a buck or two. So, at this point, everyone is paid differently. Unfortunately, word of this has spread, and some employees are upset that they are paid less than their peers. They want explanations — and raises. What’s the best way to get out of this mess?”

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Reader responses

David Perry, Perry-Martel International Inc.:

Here’s a great opportunity to bring the performance of the whole company up to the level you want. I would take staff aside individually and tell them, “The highest-paid employee is at X dollars, and I’ll happily pay you the same if you perform at the same level. Oh, and by the way, here’s what you need to do to improve.”

Increasing the value of your company is not just about collecting talented people. It’s about aligning your employees with your company’s overall strategy, getting them to buy in and to commit to a common vision. More importantly, you need to compel them to work towards the idea-not because you told them, but because you gave them impassioned reasons to do so. Then employees will take responsibility for how their actions affect the business.

Companies today, more than ever, need leaders capable of managing a community of people with a common mission who are willing to routinely operate at peak levels. When I was a retail manager for Consumers Distributing, which grudgingly paid minimum wage, my staff won 28 of 36 sales contests over three years, representing millions upon millions in additional sales. In their wisdom, Consumers disqualified us because we had won so many times. They wanted to be fair! My staff was motivated to continue on winning. One has to wonder what could have happened if they had encouraged everyone to perform at a higher level.

Robert Ancell:

In addition to your minimum wages, you should offer incentives or bonuses when staff attain set targets. Although this sounds like commission, it allows everyone to play on an even level, and the performers will ultimately shine.

Shari Cooper, Pivotal Integrated HR Solutions:

Unless you have a collective agreement in place requiring that you pay based on seniority, there is no rule that says you must pay poor or average performers the same as excellent performers. In fact, merit pay, or tying pay to performance, is an excellent way to encourage employees to focus on company goals, and to recognize and reward people for their efforts to achieve those goals. In some situations, paying everyone the same regardless of performance has been shown to demotivate star performers (“Why should I keep working so hard if I get the same pay as other employees who only work half as hard?”) and retain poor performers (“Nobody notices if I slack off”).

However, there are some critical points to keep in mind when implementing a merit pay system:

  • Communication: It must be crystal clear to your staff that any differences in pay are based solely on merit, or performance on the job. If employees think pay differences are arbitrarily decided (perhaps based on favouritism), then animosity can develop and company morale and performance can plummet. A clearly communicated compensation plan will tell your employees exactly what performance levels are expected, how they will be measured and how they will be rewarded through their pay. Any inequities in pay should be easily explained by pointing out the difference between observed and expected performance levels.
  • Consistency: Your merit pay strategy must be consistently applied-always. If not, it, and you, will lose credibility, and employees will revert to the perception of unfair treatment. One way to create consistency is by completing formal employee performance evaluations on an annual or semi-annual basis. The documented evaluations provide you and your supervisors with a common tool and method with which to evaluate your employees. These can also serve as back-up documentation in case you are called upon by government officials or legal counsel to defend your actions with employees.
  • Legality: It must be very clear that pay differences are not in any way related to gender, nor to any of the grounds prohibited by your province’s human rights code. (In Ontario there are 15 such grounds.) Your communication and consistent application of your pay strategy will help.

Rob Frappier, D&D Automation Inc.:

You need to emphasize that pay is proportional to performance. Everyone should not be paid the same if they are not performing the same. Provide examples of exemplary performance to those who feel they deserve a raise. This has the added benefit of having your staff rise to the challenge because they know they can increase their compensation.

You also need to promote confidentiality. When increasing an employee’s pay rate, you should clearly state why they are getting a raise and that it is confidential.

Murray Pattyn, Priority Electronics Ltd.:

Bumping up one employee due to “exceeding expectations” or for whatever your reason hurts you and your business in at least two ways. One, money is a temporary motivator. The appreciation will soon be forgotten, leaving you back in the same position as before. Second, while you can instruct anyone who gets a raise to keep it to themselves, that never happens. Even if they swear on their mother’s grave they won’t tell a soul, they will. And when word gets out, you’ll get complaints, as you’ve described.

Try things that get the attention of the employee as well as their co-workers. Range the recognition from praise in front of others to monetary gifts or rewards, such as gift certificates or tickets to a movie or sporting event. The reward just has to be something that you can repeat if others achieve the same, and something they are interested in and will use.

You could also set up a scale or set of goals based on a measurable objective. Getting a bit of competition going among individual employees and/or teams can spur creative thinking and efforts. Regular reviews, and even putting a gauge or progress chart on the wall, can keep your staff focused on a common goal. Keep your rewards creative as well. Different people respond differently to different goals and rewards. Changing things keeps them interested and involved in your business, and keeps morale up as well.

David Schwartz:

I think the answer is obvious. Be honest and upfront with your employees and yourself. You should be able to go back to their employee file and justify the wage discrepancies. You do keep an updated employee file, don’t you?

If you can’t and you didn’t, then you have to suck it up, admit to mistakes if you’ve made them and ride it out. Then you should institute a proper employee evaluation plan, maintain employee files and keep your people informed of the plan and process through regular employee info sessions.

Sound like a lot of work? Welcome to the world of business ownership.

Chiquita Brown:

First and foremost, your employees need to understand that it is at your discretion who gets pay raises and who stays at the status quo. This is your company, is it not?

But to be fair and to reassure all your respected employees, you should sit down with each of them at separate times and privately discuss how they think they are doing. Be strong, be kind and be courteous. Everyone likes to be treated equally, but there are those who go beyond, and they deserve to be congratulated for their efforts and in some cases have their wage increased. Make no mistake that favouring one employee over another will ruffle some feathers. My advice is to change his or her job title at the same time as you give a raise. That way all your employees will understand.

Wayne Edgar, Trade Exchange Canada:

You have two choices: 1. Set up a program that clearly identifies what you are using to measure the success so that everyone can participate in, understand and buy into why certain people move up the food chain; or 2. Don’t tell them. Make part of the deal with the employee who benefits that they agree not to discuss any perks that they get.

Kelly J. Ramsay:

The first thing you need to do is have a staff meeting and explain what the minimum wage is and why you pay slightly above it. In addition, you should address the concern about different pay rates among employees head-on by explaining that you pay more because you recognize and appreciate their contribution to your business. I might even go as far as to state that your base pay is offered to do a good job, not just a job, and that to get more, they need to do more.

You should then consider implementing changes in how you manage your pay schedule and address that at the same meeting. First, quarterly performance reviews would help not only the employees understand how they are performing, but also provide you with insights as to what they might excel at, and what they bring to your business.

Secondly, consider a new compensation plan that’s either a) base plus commissions (if possible) or b) a tiered system with corresponding increments in salary. For example, a sales associate gets slightly above minimum wage, a senior sales associate gets a higher wage, a sales trainer get a higher wage and a sales manager a higher wage. Of course, each of these tiers requires a detailed explanation of responsibilities and measurement metrics that are understood by all.

Kevin Dee, Eagle Professional Resources Inc.:

What mess? Here is an entrepreneur who has rewarded success, and I don’t view that as a problem. The answer in the short term is to tell people that you are willing to pay a little extra when they demonstrate that they are worth it. In any business, a great employee will generate more business because clients or customers will enjoy working with them, and that is worth something to you as a business owner. Use this as a way to raise the bar!

As an aside, I think the practice of rewarding through a raise to be a little risky because there is no incentive to keep up the quality. Another approach is to offer a bonus whenever anyone operates at a higher standard, but the bonus has to be earned all the time.

Roberto Sangiovanni, Auto Intel:

You can’t fire everyone and start hiring again with a new pay plan. But you should restructure your pay plan based on performance. For example, you could put in place a remuneration plan where the ones who are now paid less could obtain a bigger paycheque by attaining specific sales goals.

Of course, you must not offer the same pay plan to the ones who are currently being paid more. You should wait for them to come and ask you why they weren’t proposed the same deal-and believe me, they will. That’s when you should take the opportunity to propose a bigger paycheque than they already get, by giving them the same pay plan as the lower-performing group in exchange for a smaller base salary. What you should stress is the potential to earn a bigger paycheque. If those who are already performing well have the same pay plan as the others, by default they will earn more income than their peers and more income than they do now, simply based on their higher sales volume. Thereafter no one in your staff will feel discriminated against or inferior.

Your salary payouts will reduce, your sales will increase, your staff will be motivated, your customers will get a speedy service and your revenue will increase. It’s a win-win-win for you, your employees and your business.

Ben J. Pritchett, Marketing Maven Inc.:

You can’t fire everyone and start hiring again with a new pay plan. But you should restructure your pay plan based on performance. For example, you could put in place a remuneration plan where the ones who are now paid less could obtain a bigger paycheque by attaining specific sales goals.

If an employee truly gave exceptional service, and is doing better work than other employees, then benchmark that work. When others complain that they aren’t getting paid equally, they need to be shown that they aren’t working to the same level either. If the other employees are shown what they have to do to earn more, then they have the choice to give you, and your customers, better service, for better remuneration, or they can do the same, and continue to get the same pay.

One of the craziest things in employee/employer relations occurs when staff expect to get paid more without doing more. If all your staff start meeting your higher expectations, your customers should reward the difference by increasing your sales, and then you will have the profits to increase their wages.

In our businesses, we have largely solved this problem by instituting a bonus system. The staff have to work together to improve overall sales, then they get to share in a bonus pool that only exists if they meet certain goals. Doing this raises the entire team’s performance and helps everybody out.

Since you operate multiple locations, I would suggest that you also set up friendly competitions among your stores as well. Since sales may be different depending upon locations, make the point of competition a percentage increase in sales, as opposed to a dollar amount.

For his answer, Ben J. Pritchett will receive a copy of How Legendary Traders Made Millions by John Boik.

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Originally appeared on PROFITguide.com