How to Optimize Retention When Restoring Pay and Benefits Cuts

Data from a number of surveys over the past few months indicate two related facts:

  1. A majority of organizations reacted to the economic downturn by taking actions such as layoffs, pay freezes and/or cuts, reductions in benefits, and furloughs.
  2. A majority of employees intend to look for new jobs as soon as they have alternatives.

Now that the economy is beginning to show signs of upward movement, executives and business owners face a dual challenge: effectively manage the reversal of cuts in pay and benefits, and maximize the retention of key employees.

Inherent in any discussion about how to reverse cuts in pay and benefits and how to retain key employees must be the recognition that management has got to focus on building or re-building two critical success factors: fairness and trust. Fairness lies at the heart of every effective compensation system, and procedural fairness in the workplace dramatically increases the organization's ability to retain employees. Trust is an integral part of a successful retention strategy. Because employers that froze or cut pay and/or benefits shattered perceptions of fairness and trust, management's first order of business must be to heal those wounds.

Here are four key tactics that together help increase management's credibility and trustworthiness when making changes to pay and benefits programs:

  1. Align the compensation and benefit program objectives with organizational goals.

    Take this opportunity to review your compensation and benefits programs from top to bottom, and make sure that their objectives are aligned with desired results. If your business goals have changed, make sure the systems that support them are modified to ensure their successful achievement. For example, survey data indicate that many employers intend to adopt pay practices that reward good performance. Your total rewards system sends a message to employees about organizational values and priorities, so make a conscious choice about the message you want to convey.
  2. Take steps to increase the likelihood that employees will accept the designated changes to the total rewards program.

    Although restoring pay and benefits cuts seems like positive news, employees who have been subjected to layoffs and pay and benefits cuts are likely to be wary of further change because they remain distrustful of management. Examples of actions you can take to accelerate the re-building of trust include ensuring that the changes are transparent, involving employees to the extent possible, communicating early and often, and educating first-line managers and supervisors about how the changes will affect individual employees.
  3. Incorporate procedural fairness into organizational processes and decision-making.

    Procedural fairness refers to the rules by which decisions are made. It is a key concept in the workplace, and it is especially critical in compensation-related decisions. Employees will accept undesirable outcomes IF they believe that the rules or processes used to make the decisions were fair. You can increase perceptions that changes to the compensation and benefits programs are fair by ensuring that decisions and processes are free from bias, transparent, based on objective criteria, and provide meaningful opportunities for those affected by the outcomes to have a voice.
  4. Communicate, communicate, communicate.

    There are two aspects to communication: actions and behaviors, and words. Employees believe what they see rather than what they hear. Thus it is critical that leaders' behaviors and actions are consistent with their words.

Restoring pay and benefits cuts are unlikely to be sufficient to retain key employees. Here are three strategies you may use in addition to changes in total rewards that will increase the likelihood that your good performers will stay with your organization even when they have alternatives.

  1. Make employees a high priority.

    An employee-centered workplace™ is one in which every person, system, process, program, and policy is focused on helping employees become fully successful. When employees feel that management really cares about them, their productivity, morale, and engagement increase, and they are more likely to remain with the organization. Employees who are a high priority serve customers well, which results in successful outcomes for the organization.
  2. Ensure that all employees see the "big picture" AND that they can articulate the contributions they make to achieving that outcome.

    Employees who feel part of something bigger than themselves are more engaged and committed, and they have higher morale than employees who feel disconnected from the organization.
  3. Develop an appreciative culture.

    What I mean by an appreciative culture is an environment in which the proverbial glass is half full instead of half empty. That is, the organization seeks out things that people do well and builds on those strengths. A positive environment in which contributions are valued encourages employee engagement, increases collaboration and morale, and increases trust and credibility. A little recognition has a huge ROI (return on investment).

To learn about best practices in verbal and written communication, please see our article How to Communicate Changes in Pay and Benefits Effectively.

Pat Lynch, Ph.D., is President of Business Alignment Strategies, Inc., a consulting firm that helps clients optimize business results by aligning people, programs, and processes with organizational goals. You may contact Pat or call (562) 985-0333.

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