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Salary Freeze

Dear Dave
We have a handful of employees on our staff we feel have more than topped out as far as additional increases to their base pay are concerned. They are valuable from the standpoint of what they do for what we pay them, but in relation to what we pay others at our firm, we just cannot bring ourselves to pay this group more than we currently do. On the other hand, we don’t want to loose them either. What do we do?

Dear AM
Tough question. This probably won’t go over too well, but as a first step, you need to at least sit down with each of these individuals and clearly layout the reasons you have come to the conclusion you have regarding their pay rates. Should it be conceivably possible for these folks to someday take on more responsibility, or otherwise change their roles in order to reopen the possibility of a future pay increase, be sure to tell them what they will need to do to make this happen and offer to help them prepare.

A tactic some firms use to deal with salaries which they feel are getting too high is to substitute periodic, lump sum distributions in lieu of pay rate increases. This keeps basic pay rates from compounding year over year, but still allows for some additional compensation when the company feels it is in a financial position to do so. This works best if you describe in advance the specific conditions needed in order for lump sum payments to occur such as profits must be at least equal to “Y”, or fee billings are equal to “X”, etc.

If direct dollars are entirely out of the question, you might consider allowing additional time off each year, or perhaps grant special privileges such as flexible schedules, or permit the personal use of an available company car to “compensate” for the lack of further increases to base pay.

Wahby and Associates