The dark side of pay raises

September 1, 2015 Michele Glassford Employee Relations, Employment/Labour Standards, HR Analytics, HR Policies and Procedures, Human Resources, Payroll, Pensions and Benefits, Union Relations, Wages and Compensation

A few weeks ago there were well-publicized reports of the planned and implemented increase to Wal-Mart’s minimum starting pay rate having a very negative effect in the workplace. A Bloomberg article on August 6, 2015 explained that Wal-Mart’s chief had intended the increase to boost employee morale and help to retain employees. The article reports that the strategy has had the opposite effect. Although a great thing for new hires, the new starting wage rate resulted in narrowing the wage gap between new hires and experienced employees, leaving experienced employees, some with many years of service, feeling unvalued, resentful of new employees and venting on social media.

The Wal-Mart story is a cautionary tale for employers who are advised to have a pay structure policy which considers global pay raises, such as the one implemented by Wal-Mart, or more likely, an increase to the provincial minimum wage.

Most provinces and territories in Canada have now adopted the model of a Canada Price Index-based regular minimum wage adjustment, including Alberta, British Columbia, New Brunswick, Nova Scotia, North West Territories, Ontario, Saskatchewan and Yukon, with the others still implementing periodic increases, albeit without a legislated schedule.

This means of course, that all employers who have minimum wage employees will be facing this issue every year. Every year, new hire wages will creep up or match the wages of those who have experience and have stuck with you in what are often high turn-over sectors.

Employers in this situation should consider a pay structure in which raises are amounts over and above minimum wage (or starting rate, if starting rates are already higher than minimum wage), rather than cents per hour increases. For example, an employer might reward an employee a 50 cent per hour raise over and above the minimum or starting rate of $11.00 per hour in Ontario ($11.20 in Alberta on October 1, $10.45 in BC on September 15, $11.00 in Manitoba on October 1, $10.30 currently in New Brunswick until 2017, $10.50 in Newfoundland and Labrador on October 1, $12.50 in Northwest Territories, $10.60 In Nova Scotia, $11.00 in Nunavut, $10.50 in PEI, $10.55 in Quebec, $10.50 in Saskatchewan on October 1 and $10.86 in Yukon) which would result in a current pay rate of $11.50 per hour and would automatically increase on October 1, 2015 to $11.75 per hour when the minimum rate increases to $11.25 per hour. To not do so would result in the value of the employee’s hard-earned reward being cut in half and, as yearly increases are based on inflation, an erosion of the employee’s buying power.

The above-noted model is suggested as a fair way to maintain employee morale around wage issues, however, it also means that minimum wage increases have a more significant cost consideration, as every employee’s wage rate would increase, not just those being paid minimum wage.

Such considerations are not just for those paying at or near the minimum wage. A recent news report in Business Insider stated that when Gravity Payments CEO decided that all employees of the company would earn a minimum of $70,000.00 per year (which was a significant increase for many employees), he lost some key employees and suffered criticism that such increases undermine those who have received merit increases through long hours and years of hard work. So it seems that the recognition of an employee’s performance, no matter the size, is as valued than the money itself and not something to be undermined lightly.

No one ever said being an employer was going to be easy, did they?

HR PolicyPro

For a full discussion on more comprehensive pay range structures, see Chapter 3.05 – Pay Range Structures in the Human Resources PolicyPro published by First Reference Inc. and edited by Michele Glassford and Derwyn Hancocks.

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Michele Glassford

President and Managing Editor at DRH and Lawyer at MacKinnon Law Associates

Michele Glassford, is a lawyer, researcher and policy analyst with a background in employment and labour law.In addition to a part-time law practice in Stoney Creek, Ontario, Michele has worked in the field of labour adjustment for the Health Sector Training and Adjustment Program and has been a Researcher for the Canadian Broadcasting Corporation. Michele also holds the position of President and Managing Editor at D.R. Hancocks & Associates Inc., author of the Human Resources PolicyPros. Read more