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Why Managers Don’t Manage Pay

New managers, when hired, are given the proverbial “Keys to the Kingdom” – your company. From hiring, to promotions, to salary reviews and equity adjustments, they’re make decisions that directly impact your labor costs, thus granting them access to your finances.

However, most of these managers turn out to be, at best, well-intentioned amateurs when it comes to making appropriate pay decisions regarding the needs of the business. Fresh from being anointed, they often lack the basic internal education necessary to make business vs. emotional decisions – and their actions commit you and the company to costs that may not be in your best interests.

Actions taken by these managers not only increase direct costs, but often irritate other staff members as the circumstances become known, creating morale and internal equity problems at the same time. The net result is usually a corresponding loss of engagement and ultimately separations by disenchanted employees.

Note: Most employees leave managers, not companies. Thus, actions do have consequences. Likely this situation isn’t what you envisioned when you made that promotional decision.

Now, how did your company get itself into this mess?

First, few businesses really train managers on how to properly attract and reward employees via base salaries and incentive pay.

A few anecdotal examples:

  • Just because someone is a good XYZ operator does not mean he’ll be an equally good XYZ manager. The skill sets for success are drastically different.
  • How many managers understand your company’s philosophy about pay? Do you? How many understand the workings (the “what” and the “why”) of the company’s pay practices and methodology? Managers are responsible for spending 40-60% of your revenue (employee pay), and even the most well-intentioned person is prone to making mistakes.
  • Managers want to be liked; they don’t want to pick favorites, don’t want to discriminate on the basis of performance, and definitely don’t want to have their decisions challenged. They would rather point a finger at HR and assign the blame there for having to assess performance and distinguish one employee from the other. Left to their own devices, they’d give everyone as much as they can.

Consider this. If you were a high performing employee, would you like to work for this sort of manager? If you were coasting at work, barely putting your time in, how would you feel? Which employee will tire of being undervalued and eventually quit? Leaving the manager with a staff of…you get the picture.

Ineffective managers are always afraid that an unhappy employee will decide to quit, but that’s usually a selfish thought. Their prime concern should be more about what this departure would mean to their deliverables and to their reputation as a manager. It’s typically viewed as an inconvenience to them, not an avoidable loss for the company. This practice is reflected when managers resist granting a transfer that’s clearly in the employee’s career interests. The manager’s concern is how that transfer affects his or her department – and whether the manager’s personal success becomes more difficult to attain.

Assuming the company’s willingness to make key decisions, and the presence of all important support from senior management, companies can correct the problems they’ve created.

  • Select candidates for management positions on the basis of skills and potential for actual management (dealing with people, managing projects, business oriented, professional demeanor, etc.).
  • Educate managers in the philosophy and methodology of the company’s pay programs, ensuring this information is shared with their staff.
  • Construct job specifications that call for a manager to manage, as a prime accountability, limiting or even eliminating the retention of individual contributor responsibilities.
  • Measure and reward the performance of the managers, primarily on the basis of how they’ve actually managed their employees or on the performance of their units.
  • Encourage managers to develop the potential of their employees, to the point that a staff member being promoted/transferred upward is a mark of success for the manager.
  • Ensure that procedural checks and balances are in place to guarantee that pay decisions are reviewed by at least one higher level.
  • Hold managers to an annual salary budget; let them help develop and monitor/adhere to it during the year.

Consider the above as a checklist that can be used to test your company’s vulnerability to wasted money, employee morale problems/turnover and avoidable cost increases. Would you be comfortable with how your own company would score? My advice to clients is to face these issues straight on; to implement policies and procedures that save money without penalizing high performers or mistreating their employee base.

But the challenge will always remain, as there’s an inherent reluctance to make the tough decisions, because we do want to be liked, we do like to give good news, and we don’t like to play judge and jury with an employee’s career. But these are simply some of the responsibilities a manager takes on and must face.

Chuck Csizmar is founder and principal of CMC Compensation Group in Orlando. He can be reached at (407) 889-8918 or ccsizmar@cmccompensationgroup.com.