Top 10 Tips for Changing Compensation Structure Without Causing Panic

There are a number of reasons as to why your company and you as the owner might need to change the compensation structure and, unfortunately, the vast majority of reasons for it are bad.

You might hit a rough patch and you simply cannot afford to compensate your employees in the previously agreed-upon manner. Perhaps your industry has suffered a major blow or maybe a big new competitor entered the market.

I have also seen people being super unrealistic to begin with, finding out that they have to scale back on their promises.

In any of the aforementioned cases, the employees are understandably upset and, as I have found on a number of occasions, quite close to panicking.

Here are a few tips that I have found can help companies and their owners deal with modifying their compensation structure without causing panic among their employees.

  1. Be a hundred percent certain

You would not believe the number of times I have seen companies contemplating changing their compensation structure and even doing it without actually having to do it. For whatever the reason, some business owners do not think things through and they rush into it when they have perfectly viable options still available to them. For example, they can sell off some assets, cut down on expenses or modify their operation in some other way. Changing the compensation structure should be the last resort (or at least one of the later options).

  1. Plan everything ahead

Changing the compensation structure is not something you can do half-heartedly and without factoring in absolutely everything you can think of. This is a decision that will have an enormous impact on your company and the people who work with you. This is not something you will want to do without thinking about every single possible outcome and way to make this as easy as possible for everyone involved. Put everything on paper and then do it again and then do it again. Only once you are absolutely certain you have the perfect plan for restructuring should you actually go through with it.

  1. Consult the law

It does not matter where you live or where your company is registered, there will be laws that prescribe what you can and cannot do when compensating your employees and especially when changing the compensation structure. Checking up on the legal framework will also involve reviewing your existing contracts and finding out what your options are. This is something that is best done by legal experts and it is always a good idea to consult a corporate lawyer when looking to do this.

  1. Time it correctly

Unless you have to make the change immediately in order to avoid a catastrophe, I would suggest that you time your decision as carefully as you can. You will know when your employees are paid and how and when they access their money. You will not want to make changes in the middle of the compensation cycle. Make sure the decision does not make their lives more difficult for no specific reason. You owe them that.

  1. Be transparent

Transparency is a must when changing the compensation structure in your company. I have read about a number of cases where the employer tried to work out something without the knowledge of their employees and then just springing their decision on them. As you can expect, these cases ended badly, in more ways than you can imagine. Not only does a transparent process minimizes the chances of disaster and legal action, but it also shows your employees that you still value and respect them.

  1. Ask your employees’ opinions

The majority of people are very reasonable individuals and this goes for your employees too. They will understand that the circumstances are forcing your hand and they might actually be the best source of advice on how to restructure employee compensation in your company. They can tell you what is important to them and where you can make certain savings without causing them too much distress. Some of them may have already experienced this and they can share some advice with you.

  1. Explain your decision

Unless you are some sort of a villain, you will not be making compensation structure changes in order to hurt anyone. You will be making them because it is the only way to keep the company afloat and competitive. There will always be a clear cause for your decision or a combination of factors. Your employees deserve to know about this. This is common human decency.

  1. Make a statement

Once you have decided on what to do, make sure that you inform your employees of your decision in the clearest language possible. Respect their experience, their intelligence and the fact that they have been with you for all these years. Treat them as adults and make sure they have all the facts that they need to have.

  1. Hold meetings

Different people process major events in their professional lives differently. While some of your employees might accept the changes to their compensation in stride, there are also those who will find this much more stressful. This is why you should always make sure to hold private and semi-private (team) meetings with everyone. Answer their questions and make sure you explain your decision. You will need a bit of tact when holding these meetings, especially with those employees that you know have a penchant for drama.

  1. Nothing is final

Decisiveness is a good trait to have as a business owner, of that I am certain. That being said, sticking blindly with a decision you have long realized was wrong is not smart management. Quite the opposite. This is why you should evaluate your decision to change the compensation structure after some time. Has it produced the desired effects? Did it wreak havoc within your organisation? Are people too unhappy? Is it perhaps the time to change things once again, this time in the other direction?

Thinking things through is the mark of a good business owner.

Rebecca writes for Accountant Online, Ireland’s first online accounting practice.