Maxing Out

I caught up recently with an old friend who works in an administrative position for a large professional services firm.  When I told her a little about what I do, she brought up a pet pay peeve of hers:  salary range maximums.  Having been in her role for nearly a decade, her salary has reached the max, allowing her only limited increase opportunity going forward.  As someone who’s been told she is an exceptional employee, she bristles at the suggestion that there should be a finite limit to her pay growth.

In the most common salary range configuration – the 50% wide range – employees max out when they reach a base pay level 20% higher than the estimated "going rate" for their role and level of responsibility.  I have had many one-on-ones and have presented to many employee groups about the rationale for salary range maximums.  I tell them that an employee at maximum is earning a premium of 20% (assuming a 50% range width) over what we have determined to be the “market rate” for jobs like theirs, a likely result of them being rewarded for impressive performance in their role over a number of years.

Few appreciate hearing this, of course, and I don’t always relish being the one to deliver the message.  But it is a reality that makes sense on a number of levels – not the least of which are 1) that nobody can be guaranteed unlimited base salary growth and 2) there should be some incentive for employees to invest time and energy in growing their skills and capabilities in a way that brings heightened value to their employer. 

I know.  We’ve got the lump sum increase as one widely applied solution.  Nearly half of the employers participating in WorldatWork’s 2010/2011 Salary Budget Survey provide lump sum increases to employees (40% of employers provide them to nonexempt hourly nonunion workers, 44% to nonexempt salaried, 46% to exempt salaried and 31% to officers and executives).  And a lump sum increase is certainly better – way better – than no increase at all.

And yes, I know.  Many of you have broader salary ranges, so that the issue doesn’t rear its head until an employee is 25% or even 30% above their market wage.  (Broadbands?  Don’t even get me started.)  Bottom line, I think there is value , for employees as well as employers, in the kinds of controls and constraints that salary ranges provide.  There is protection from underpayment as well as overpayment.  Ranges help ensure that there is rhyme and reason to how salary decisions are made – no small thing this.

But still I am nagged by the sense that there may be a missed opportunity here.  Because there are employees who can and do rise above their role.  Employees who can or already have delivered something extra; not necessarily something that qualifies them for a higher level job, but something with tangible value. 

I'll also confess that I've not yet been sold on the wisdom of a wholesale movement away from job-based pay to person-based pay.  I can grasp the logic and beauty of it - in theory - but I still believe that it is the exceptional organization who will be able to execute it well.  Still, there are places where additional person-based practices can and should be considered, and the enforcement of salary maximums may present us with just such an opening.   Whether through special project work, process improvement, providing mentoring or peer coaching – whether through a salary increase or some variable pay mechanism, I think we need to be on the lookout for well-conceived opportunities that open the door for alternative contributions and alternative rewards for those who have maxed out in base pay, but have the potential to contribute more in their current role. 

Can we design these kinds of opportunities into our pay management practices in a way that allows both employer and employee to win?  Or would these efforts simply create another semi-automatic entitlement which simply slides our salary maximums out without a corresponding commitment to value creation?

Just wondering out loud here.  Any experience, wisdom or opinions to share on these questions?

Image courtesy of reconis.com

Comments

[working girl]

I like lump sums and feel a bit sad that no one ever gives me one. It's no favor to someone to keep increasing their salary for the exact same job year after year until suddenly that graduate student starts looking like a real bargain...

[Ann Bares]

Laura:

That is sad. :(

But you bring up a really good point - are we, over the long term, doing a person a favor if we allow their base salary to increase far beyond the value of their skills in the marketplace? Does this distortion help - or hurt - their career development over the long run?

I'm just asking - for the sake of giving conventional compensation wisdom a kick in the behind and prompting debate - whether there should be exceptions to the max out rule. And, if so, what would they look like.

Thanks for weighing in!

[E. James (Jim) Brennan]

n my relative childhood, I interviewed the world-leading designer of spacelab door-lock systems as he mourned the end of his career specialty, with a family dependent on a very high salary now unattainable anywhere, particularly with his formal KSAs in the broader technical applications quite inferior to current graduates. Like a squirrel too far out on the limb. Tragic.

Alternate remuneration options existed. There is no reason anyone should have a finite limit to their pay growth... unless they refuse to upgrade their KSAs for a higher-valued post. I don't need a platinum paper clip and would not pay for one. Why should the employer pretend that work of finite value carries infinite cash entitlements?

See my point? The PERSON's value may be infinite, but the economic value of a particular set of skills in a given context is finite. IMHO, the employer has a certain moral obligation to clarify that and to offer paths with potential opportunities to qualify for progression as high as possible, consistent with reality. Anyone "topped out" or capped in one job really should be guided to possible alternatives that could permit them to continue mutual enhanced exchanges of higher-valued services for greater rewards. Must be a thousand ways to do those things.

That said, yes, there are exceptions to every max-out rule. Some totally unique jobs are the outliers that don't fit the standard limits. Some individual workers are literally irreplaceable and should not be bound by the rules that properly handle all others. For a perfect example: the aerospace space capsule cabin environment engineer/technician whose absence tucking the astronauts into the capsule capsule in the many Mercury and Gemini manned launches was NOT the one in charge in the tragic Apollo I disaster where all died. The word was that thereafter the astonauts demanded he be the guy or they don't fly. Without him, any manned space capsule contract was doomed; so he could name his price.

[Ann Bares]

Jim:

Great points. A good friend of mine who provides career counseling has shared numerous examples to me of individuals struggling to move on from situations where they were paid way out of whack with the market - places they needed to leave and move on from - and yet they found themselves, as you say, like a squirrel too far out on the limb. Trapped. And while we may chuckle that - yes - we would love to be in the position of being so overpaid, the life implications and choices of someone who finds themselves in that position are not always pretty.

So yes - I do buy that pay systems should establish finite pay limits for certain skill and capability sets, and that the way around this wall is to increase your skills and capabilities. But I also believe that we must have an open mind as to how limits are set and capabilities are judged - even if only at the outer edges.

Thanks for weighing in, I am really enjoying the discussion.

Others?

[Blair Johanson]

Ann:
Thank you for sharing your thoughts and reasoning about salary range maximums. We work with both public and private employers and we have observed school districts to be the highest violators for allowing pay adjustments beyond the pay range maximums for their non-certified staff. We found one school district with 85 pay steps which means that they probably started their pay schedule with 30 steps - 30 years of service and they added an additional step for each year for the past 55 years. We encourage organizations to establish true 50% salary range spreads and cap employee base pay upon receiving the maximum. For those who desire recognizing their employees' contribution for the past year that have reached the cap, we recommend the lump sum increase. In addition, we help the organization identify if opportunities exist for true job expansion beyond "job creep" so employees that have "top out" are able to seek and obtain the additional KSA's (Jim's point)to qualify for the job of higher value and contribution to the organization. Also, for the high performing and topped-out employees, we encourage organizations to place these employees in mentoring roles and receive additional pay for sharing their KSA's with the junior staff.

[Ann Bares]

Blair:

Great thoughts and advice. Sounds like we are - probably all of us - aligned in our thinking. Thanks for the comments!

[Jeffrey L Tucker]

In the past two years I've moved all our staff to a merit/pay for performance system based on goals developed in each role, tied to the organization's mission/vision as well as the goals I, as CEO, have developed for the year. There's no longer the automatic CPI-type increase at the beginning of the year -- that increase is now a part of the P4P pay system and is based on a listing of desirables in our staff such as community participation (meaning within our office community), having integrity in our work and dealings, and a host of others I've cobbled together from some university programs I've seen. That increase tends to be from 0 to 1.5% -- so that baseline salaries themselves don't stay stagnant and then the true potential is the end of year merit payment, which can be quite substantial. My concern has been the stellar performers and their salaries. I want to keep these individuals and the KSA approach seems to lend itself to building in a formal policy for income growth for these individuals based on their desire to upgrade skills and assume more responsibilities. That may address my concern - so thank you for this thread and your ideas!

[Ann Bares]

Jeffrey:

Sounds like you've made some great strides in your pay and performance systems. Research would suggest that when changes in these programs are strongly supported by the CEO (or, as in your case, the CEO has a direct hand in them), the chances of success are much, much higher. Thanks for sharing your ideas and experience here with us!