How Should HR Handle Sudden Changes in Salary Increment Strategies Without Employee Updates?

Hi, HR professionals, I would like to discuss a case:

"When the company had been following a strategy of giving increments yearly. But suddenly the strategy changes without any information to the employees. Since it is decided by the management, they are unwilling to conduct any appraisal. The HR doesn't know any details regarding the same as the management is not providing any updates on the same with HR. The employees are pressuring HR in this situation."

In the above case, I would like to bring out a few questions:

1. Is it necessary to inform the employees of the changed strategy?

2. If you are the HR, how will you handle the situation?

3. How to retain stressed employees?

4. Is it normal in a startup?

Looking forward to hearing from you.

This looks like an assignment given for academic evaluation. Yet the responses are as follows:

1. Any employer interested in maintaining a long-term relationship with employees has to involve the employees and communicate clearly the reasons and the likely date for resolving the issue. No employer can keep the employees guessing on such a vital aspect of employment.

2. First, have a clear understanding with the management on the prospects of resolving the matter and then communicate clearly to the employees.

3. Communication, trust, and openness hold the key. If the management has a credible image among the employees, then its words will be taken seriously; otherwise, the repercussions could be serious.

4. Start-ups being relatively small enterprises, there is a lot of clarity on such matters. However, if the organization has remained opaque, then be sure the days ahead are going to be very tough for its very survival itself.

Salary Increment: Rights and Practices

Salary increment is not a right of an employee unless there is an incremental pay scale. An incremental pay scale means a scale of pay that includes an annual increment. However, if by custom you have been following a practice of giving an increment every year, changing this without taking employees into confidence is unfair.

Two Aspects of Salary Increment

There are two aspects to salary increments: compensating for the cost of living and rewarding employee performance. Both should have monetary value. If you are paying a dearness allowance based on the consumer price index, you are addressing the former, i.e., compensating for the cost of living increase. Rewarding performance should be done through performance appraisals, which should also be transparent. Eliminating this altogether is unfair and will demotivate performing employees.

Communicating Management Decisions

As HR professionals, it is our responsibility to communicate management decisions to employees. Now, the management has decided to drop the system of paying annual increments. This should be communicated to the employees. However, before making a final decision, please educate or inform the management of the potential consequences: demotivation, attrition, absenteeism, etc. You should submit to the management the importance of salary increments, linking them to the increasing cost of living and rewarding performance.

Thank you for your insight on the issue. Unfortunately, the management has replied that it is not necessary to inform the employees, as this is the system maintained in MNCs as well.

As a solo HR professional, I was a bit confused and felt stressed in the situation. I thought of seeking suggestions from the HR team.

Hi, I hope you are that HR professional who is facing pressure from employees!

Annual performance appraisals and increments

Annual performance appraisals followed by increments are based on the company's performance for the period under review. In the normal course, many companies conduct performance appraisals in April of every year. April, being the start of the financial year, makes it easier for the HR/Accounts team to calculate income tax for each employee.

Impact of the fluctuating economy

With the fluctuating economy, especially after COVID-19, many industries are experiencing sluggishness in their respective businesses, and increments cannot be guaranteed on time.

Importance of communication and employee retention

Regular performance appraisals on a yearly basis instill confidence in employees regarding management. In the absence of increments without any updates, employees tend to seek other offers. While it is not mandatory to inform employees, if the employer's plan is to sustain the business and retain employees, some communication should be shared with employees.

If you are receiving frequent questions from employees, document them and escalate to top management, awaiting their response. Top management, if interested in retaining employees, will provide guidance on how to address the situation, such as making commitments for the future.

Counseling and market challenges

In the absence of increments to a certain level, you may retain employees by counseling them about the challenging market situation. However, it may be challenging to retain them if competitors in similar businesses offer better pay.

It is crucial to understand the pulse of top management.

I don't think that MNCs have a system of keeping employees away from the policies, but they are more vibrant regarding 'communication.' The major role of an HR executive in such companies is to communicate the management's policies. Moreover, an MNC does not require any special treatment regarding the implementation of HR practices. You may write to the management about the consequences of not giving annual increments. You can use the same wording that we have shared here, such as employee morale, cost of living, chances of losing good employees, attrition, rewarding performance, etc. In the meantime, take the employees into confidence that the management will be responsive to their apprehensions. If the management is interested in continuing the unit, I am sure they will give a favorable reply.

1. It is indeed necessary to inform employees of any changed strategy that directly affects their compensation or benefits. Transparency and open communication are key in maintaining trust and a positive work environment. Changes in salary increments can significantly impact employees' financial well-being, and therefore, it is crucial to provide them with timely and clear information about such decisions.

Steps to Address the Issue

As an HR professional in this situation, I would take the following steps to address the issue:

a. Communicate with Management: I would initiate a conversation with the management to understand the reasons behind the sudden change in the increment strategy. It is essential to gather relevant information to effectively communicate with employees.

b. Develop a Communication Plan: Once I have the necessary details, I would design a communication plan to inform employees about the revised strategy. The plan should be transparent, empathetic, and clearly explain the reasons for the change.

c. Organize Town Hall Meetings or Q&A Sessions: I would arrange meetings or sessions where employees can openly express their concerns and seek clarifications. This allows for two-way communication, building trust, and addressing any misunderstandings.

d. Employee Support: Recognizing that employees may feel uncertain or stressed due to the change, I would ensure that HR is available to provide support and address individual concerns. This could involve offering counseling services, facilitating discussions, or providing resources related to financial planning.

Strategies to Retain Stressed Employees

Retaining stressed employees can be challenging, but there are several strategies to consider:

a. Open Dialogue: Encourage employees to express their concerns and actively listen to their perspectives. Validate their emotions and provide a safe space for discussion.

b. Employee Assistance Programs (EAP): Offer resources such as counseling services, stress management workshops, or wellness initiatives to support employees' mental and emotional well-being.

c. Flexible Work Arrangements: Explore options like flexible schedules, remote work, or reduced hours to help employees manage their stress and maintain a work-life balance.

d. Recognition and Appreciation: Regularly acknowledge employees' efforts and achievements to boost morale and motivation. Recognize their resilience during challenging times.

Communication and Transparency in Startups

While changes in strategies can occur in startups, it is not necessarily "normal" for the management to withhold information from HR or employees. Open communication and transparency are vital in any organization, regardless of its size or stage of development. It is crucial to foster a culture where decisions are communicated effectively and employees are kept informed about any changes that impact them directly.

Remember, every situation is unique, and it's essential to adapt these approaches based on the specific circumstances and organizational culture.

Is it necessary to inform the employees of the changed strategy?

- Yes, it is necessary to inform employees of any significant changes in company strategy, especially if it affects their compensation or performance evaluations.

If you are the HR, how will you handle the situation?

- As an HR professional, I would gather information, establish communication channels, organize employee meetings, and advocate for employees' concerns with management.

How to retain stressed employees?

- To retain stressed employees, I would focus on open communication, recognition and appreciation, work-life balance, career development opportunities, and implementing employee support initiatives.

Is it normal in a startup?

- While strategy changes are common in startups, maintaining open communication and transparency with employees is crucial to building trust and engagement.

Hoping the answer helps.