Q: My employer just announced pay increases will start again in our company, and my supervisor told me that my pay is at the top of the pay range so I won’t get a raise or a cost-of-living adjustment. This stinks. How is it fair that everyone else will get a raise and I won’t?
A: If you were unaware of the pay range cap then this news would feel very unfair and you are understandably angry.
Is a pay cap fair? If the range that has been set for your job is a realistic picture of the low and high pay, and you are paid at the top of that range, you are paid better than most people doing similar work. Your paycheck won’t get any bigger this year, but it does feel good to know you are paid more than your co-workers.
What happens if there are no pay caps? Many years ago a company founder, J.D., created a very simple employee pay system that provided the starting rate for jobs but no pay caps. Every year he gave the same percent pay increase to all employees.
After 30 years in business J.D. wanted to retire and sell his company to my employer. I was on the team that evaluated what we would get if we completed the purchase of J.D.’s business. It didn’t take long to see that employee pay was a mess.
It was 1988 and the least-skilled accounting clerk was paid $48,000 a year. The company was in a small town deep in the Appalachian Mountains, where a very nice home on a large lot could be bought for $55,000. Not only was $48,000 a fantastic income for an accounting clerk in that location, but that clerk was paid $13,000 more than her supervisor, the accounting manager.
People who were hired when the company was small and stayed in the same job were paid extremely well. People hired in recent years were paid low wages compared to their long-tenured co-workers. There were several problems with the pay policies at J.D.’s company, but the large inequity problems were a result of not having caps on pay ranges.
It is rare to have a chance to see a real live “what if” that was allowed to grow into a full blooming mess over 30 years. We did buy that company. It took us more than a year to bring some order to the employee pay program. And I am happy to say that the employees were relieved when pay finally made some sense — including those employees paid exceptionally well.
Today the focus is on the cost of labor, not the cost of living. It isn’t likely we will see a return of COLAs anytime soon.
In the 1970s, when we had double-digit inflation, COLAs were provided to allow employees to maintain their current standard of living. Unions built COLAs into their contracts and many large companies copied them to keep pay competitive.
Nowadays unions have far fewer members and their power has shrunk considerably, and current contracts with public and private sector employers are eliminating automatic COLAs.
There is fluctuation in the price of a gallon of gas or a gallon of milk but the overall Consumer Price Index, on which COLAs are based, remains pretty steady and low. There just isn’t a good reason to provide cost-of-living adjustments in this economy.
Not too happy with your boss right now? You could be working for a fellow we will call John. He was the new VP of human resources and he wanted to make sure every employee would get a good pay increase. However, some employees were paid at the top of their pay ranges, so John decided to cut their pay a few months before pay increases were due just so he could announce that everyone had received a pay increase.
It took me two days to persuade him not to do such an idiotic thing. Not a high point in my career.
Virginia Detweiler is a human resources consultant and has taught business and management at Walla Walla Community College and Walla Walla University. Questions for her columns are welcome and can be submitted to her email address at firstname.lastname@example.org. Those used will be edited to remove information that would identify the sender. She also can be reached at 509-529-1910.