What to do when you’re over paying

 You might find yourself in the unfortunate position of paying your workforce more compared to the current market.

This can happen for a number of reasons, including COLA. The 3% increase from Cost of Living Adjustments can put your business at risk of overspending if you don’t pay attention to market trends, especially if you have good staff retention.

But even if you are diligent with aligning your increases based on merit, if your managers are not calibrated properly with their performance appraisals, you might end up with a team of top performers paid well outside the market.

It is important to find out the causes and adjust your pay and benefits accordingly so that you don’t end up with a short-term solution, that doesn’t address the underlying problems.

1. The red ring of death – No, I don’t mean the dreaded circle of red lights that indicates your XBox 360 has just kicked the bucket. Red circled employees are ones who are being paid outside of the maximum range for their job. As such, the most used strategy for overpayment is to simply freeze the base pay of red-circled employees.But before you do that, you should really evaluate those employees to try and identify some trends that might indicate why this is happening. Are they on the same team? Were they hired around the same time? Freezing base pay is best reserved when overpayment is happening across the business.
2. Fortune favours the brave – A good strategy for when you do need to freeze base pay is to move onto performance-based incentives. Communicate that base pay will be frozen but then align a good pay and benefits scheme to your business goals and achievable objectives. This will keep your top performers performing without compounding your compensation problem.If you are in the fortunate position of having a whole team of top performers but they are all above market, why not target higher in the market for base pay and try and reduce the amount of red-circled employees?
3. Consider some alternatives – If freezing base pay doesn’t fit your business style you can make some smaller adjustments, like how you give out increases or put more of your budget towards low market employees. You are probably thinking “Why would I want to do that!?” Well, it simply means you will have less budget for those in a high market. Although you will still have red-circled employees, you are slowing down wage growth and overspending.
   
   You can also consider decreasing base pay, evaluating your current career paths, assessing your current policies, and training your managers.

To find out how Reality HR could support your business growth and help you develop a pay and benefits scheme that suits your business gives us a call on 01256 328 428 or fill out the form below to organise a callback

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