How do I give an annual salary increase to an employee who has reached a maximum salary ceiling in his or her notch or position ?
A question from James at HR Toolbox… but one which I have also heard from clients and past colleagues as well.
It can happen quite easily that someone reaches the maximum pay for their grade or job.
Please, never promote someone “because their pay is too high and doesn’t fit into the salary range” !
I’ve seen it done at some of my clients and it creates all sorts of problems which are worse than having to manage someone who is an exception, or borderline an exception. Maybe I’ll cover that in another post someday….
A recommended approach here would be to calculate the amount of the annual increase the employee would get if there was no ceiling, and to pay it as a lump sum instead.
For example :
- Base pay : USD 50,000
- Salary increase for that employee’s performance : 3%
- Instead of increasing the base pay to 50,000*1,03 = USD 51,500, pay 50,000*0.03 = USD 1,500 as a lump sum.
- Keep the base pay at USD 50,000.
- The employee is still rewarded according to his performance
- Sends a positive message to the employee (good for perception of fairness). You may also want to remind the employee that in fact they are lucky as they are already paid at the top of the range for their job, which means “more than the huge majority of your colleagues in the same job” 🙂
- This doesn’t have to be permanent : as the salary range is upgraded and the employee “falls back” within the range they will become eligible for the regular salary increase again. The same applies if the employee is promoted to a new job (a true promotion, of course… see my initial comment)
- No increase in permanent costs
- The employee doesn’t drift too far from what the company deems appropriate for that job (this why there is a ceiling in pay) and reduces the risk of being singled-out in terms of costs, which could be a negative if the company faces financial hardship.
I hope you find this quick tip useful for your upcoming salary review cycle !