Dinesh Divekar
Business Mentor, Consultant And Trainer
Umakanthan53
Labour Law & Hr Consultant
D Phani Kumar
General Manager- Hr
+1 Other

We recently restructured (reduced) salary of an employee since the employee performance was not upto mark. we did not put the employee in performance improvement plan. just based on the feedback of the manager of the employee we reduced the salary of the employee. the manager of the employee did not share his -ve feedback to the employee. now the employee is asking why his salary was reduced. is there anything wrong in what we did?
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Mounika,
Reduction in salary is a punishment. Before awarding any punishment, domestic enquiry must be conducted. If not enquiry, at least show cause notice has to be given. Your company has given short shrift to these principles of natural justice and resorted to autocratic behaviour of instant justice. The incident shows that after 71-years of independence also, essence of democracy has not percolated down to the ordinary citizens of India.
Reduction of the salary is the last step. Before that proper administrative procedure has to be followed.
Employees work for money. Their salary is similar to cash flow of a business organisation. Based on this anticipated cash flow, they plan their investment, expenses and other development activities. If you reduce the salary all of a sudden without telling the employee why it is being done, it is as good as snatching food from someone's mouth.
You have reduced the salary but what fear psychosis that this incident will create in the mind of other employees, have you thought of it? The incident has power to make lose faith of the employees on the administration. This loss of faith could foster employee attrition.
Now to remedy the situation, you need to overhaul the "Policy on Performance Appraisal". At the beginning of the performance cycle, you must handover KRA sheet or goals that employee must meet. At the end of the performance cycle, employee should be given chance to prove whether he has met his goals. Rating should be based on the evidence available at both the sides, Manager as well as employee. Signature of the employee must be taken on the KRA sheet at the end of the performance review. This acknowledgement helps in communicating to the employee where he/she stands as far as performance is concerned. For poor performers, nothing wrong to place them under Performance Improvement Plan (PIP). But it has to be communicated through official letter.
In the policy, you need to define what is a poor performance. Additional definitions are what is average, good, very good and excellent performance. The policy must be communicated well in advance or right during the induction training.
When employee performs poorly, manager is expected to guide or coach the same employee. Has your manager done that? How much time he spends with the poor performer in order to elevate the performance?
Thanks,
Dinesh Divekar
Dear Mounika,
This is to sum up what our learned friend Dinesh has elaborated about transparent performance appraisal and fair disciplinary action.
If the immediate controlling authority has recorded dissaatisfactory note about the performance of his subordinate employee, it is the duty of the reviewing authority to analyze whether his findings are objective with reference to the standards of performance set down by the organization or mere subjective negative remarks devoid of any corrective measures from his end. Even if the assessment is true, it is your duty to communicate the adverse remarks to the employee and obtain his explanation before deciding the further course of action.
Reduction in rank or reduction in existing salary is a major punishment likely to be awarded only in case of serious misconducts. Irrespective of the gravity of the misconducts or the nature of punishment, the Principles of Natural Justice have to be followed by the disciplinary authority before awarding any punishment. Your post shows that you have simply acted upon the negative feedback of the reporting manager. Therefore. My suggestion would be to keep the Payment reduction orders in abeyance and put the employee on PIP.
Dear Mounika,
You can not REDUCE the salary of an employee for which both employer and employee is under a contract.
Your term " Restructure" is not legal as has got no sanctity in eye of the law.
Rather, the agrived employee should raise an Industrial Dispute against your inhuman treatment as he/she is in a right position.
Your term Restructre fall under the category of 'Change in Service Conditions' . The Industrial Disputes Act, 1947 (the Act) governs such arbitrary reductions in salaries/wages of employees.
Section 9A as read with Schedule IV attached to the Act provides that any such reduction in salary/wages or work time or days will amount to change in conditions of service. As per the Act, no such change can be effected without furnishing concerned workers with 21 days notice prior to such change.
Even if such notice is provided the employees likely to be affected do have an option to refuse to accept such changes. They can raise an industrial dispute challenging such change in condition of service.
Dear Mounica,
The action of reduction of salary of the employee in the name of restructuring of salary is void abinitio i.e. void at the option of the aggrieved employee. The action taken was nothing but disciplinary action with out following the due procedure. As rightly said by our colleagues reduction in salary is a major punishment which can be awarded only in serious cases for which it is to be proved beyond reasonable doubt after a through enquiry that the performance of the employee has come down.
It seems that the principles of natural justice were not followed in your case. Hence you are advised to roll back the decision.
Regards,
D. Phani Kumar
General Manager- HR
Heidelberg Cement India Limited.
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