I work for a 100-year-old water utility in Colorado. We are a public sector entity, meaning our employees are afforded additional constitutional protections. Our average employee tenure is more than 14 years, an average driven down by the number of retirements in recent years.
For much of our history, we have operated like many other government entities with a very generous pension, good benefits, guaranteed pay increases and changes in wages based on changes in the marketplace. This was predictable and stable, and it created a very high long-term liability for our pension plan.
The previous CEO left after over 25 years at the helm. In his place, the Board selected a person to help bring the organization into the 21st century and run it more like a business than a government agency.
Our organization was healthy, well-functioning and one of the more respected in the industry, but it had been doing things the same way for a very long time. Technically a monopoly, we still compete in Colorado and beyond for top talent. For every engineer and water treatment tech wanting to work for us, there are plenty of IT, Finance and Marketing professionals who are looking for a more modern, agile employer.
With an aging workforce and plenty of employees eligible for retirement in the next five years, it was time to adapt.
The Problem
Our utility must provide ratepayers with high quality water while being mindful of finances. Because we accept no tax funding, we have to be acutely aware of spending. The liability to our pension was becoming onerous and to keep it funded, it was necessary to review our pay practices to ensure wages did not increase too quickly or for the wrong reasons. This meant some significant changes to something near and dear to employees: their earning potential.
Traditional, public sector pay structures are built to ensure every employee receives a pay increase, regardless of overall performance. Time in grade, re-assignment of duties or market changes can result in increases to wages regardless of an employee’s performance.
As you can imagine, many employees found comfort in this. They could reasonably anticipate wage increases and enjoyed the stability of such. The problem was, wages often increased for purposes other than performance or demand.
Our Solution
The first step to reduce ineffective inflating salaries was to move away from automatic pay increases. Moving forward, an employee’s performance rating impacted his or her merit increase. Furthermore, it was tied to a very specific budget which executives could not exceed. As one could imagine, this disrupted the employees’ satisfaction.
The next step was to ensure jobs were effectively and realistically defined. This was a very large undertaking as it required the entire organization to update, organize, compare and contrast job descriptions for every position in the organization. Employees and managers alike were disrupted as the figurative magnifying glass was pointed towards their everyday activities. We worked with a consultant and used job questionnaires to better identify and distinguish one job from another as well as assess a job’s value or rank in the organization. This created tension as many found it impossible to accept it was their job that was being compared, not them personally.
Finally, we finalized job descriptions and identified applicable and reasonable wages for each level accordingly. This highlighted that many of our employees were receiving wages that were higher than what was reasonable as well as identified those employees who were receiving wages that were below the external market or below what was considered internally aligned. This resulted, of course, in some employees being delighted with the change and others being significantly disturbed by it.
Solutions are Painful and Risky
The decision to totally disrupt our wage practices had an impact on several levels: organizational, financial, and emotional.
Organizationally, every single employee was involved in this process as no job description was left untouched. It took a massive mental and time commitment.
- Financially, there were several scenarios that had to be examined.
- What was our acceptable risk for liability?
- What were salary ranges that made the most sense now and in the future?
- How would it impact future promotion opportunities?
- Would people be able to earn pay adjustments, and how could we support them?
There were a lot of moving pieces and not everyone agreed on proposed solutions and, therefore, ambiguity was rampant.
Perhaps the greatest impact was emotional. Many job titles changed and while this may seem insignificant, it was not. Many employees felt demoted or demoralized with their new titles and many others were confused by career progression because certain titles no longer existed. Wage changes had a huge effect on emotions. Employees who received increases to their wages later questioned if they had been “under-paid” or “under-appreciated” before. Employees who had, for all intense and purposes, been overpaid, were not pleased when they learned their wages would be “frozen” until they caught up to the market. They felt offended, de-motivated and demoralized.
Why Invite the Risk?
We risked increased turnover, increased retirements, lower morale, and increased workers comp claims when we decided to disrupt our pay structure. We also risked over burdening the Human Resources program that would handle the bulk of the work and nearly all of the outrage. This risked our reputation and strongly impacted how employees view leadership.
So why did we do it?
We knew change was needed to support and sustain our organization both financially and in our efforts to attract the right talent. We knew if we didn’t do something significant, our future would be at risk.
We are now confident our pension is effectively funded. While there may be fewer job titles in our new structure, there are now more opportunities for skill development and contributing to the business. We have ceased arbitrary title changes and wage increases, which gives a much better sense of fairness and equity in the workplace, and ultimately will have positive impacts on our employee value proposition.
The process continues to evolve. We work with our leaders to ensure job descriptions are accurate. We work to ensure our total compensation is competitive without putting the future financial health of our organization at risk. But even more importantly, we have used this process as a stepping stone to even more valuable processes such as the development of competency models, professional development plans and succession plans.
Lessons Learned
Leaning into an unpopular process was necessary to lay the foundation for more strategic work. This is difficult and can generate anger and frustration. Leadership must be diligent in building trust and relationships with the workforce so when change occurs, everyone trusts in the process.
Could we have avoided the disruption and stuck with status quo? Possibly, but we wouldn’t have been business leaders with an eye to our future had we stayed within our comfort zone.
This article first appeared in the July 2017 STRIVE Magazine.
About the Author
Mary is a talent strategist and business leader with almost 15 years experience in helping organizations achieve their goals. After working on the Operations side of start-ups and small companies, Mary landed in HR by way of learning and development, with extensive experience in leadership and organizational development, coaching, key talent planning, talent acquisition, performance management, business partnering, HRIS, process and policy creation, and instructional design.
In addition to her work within companies, Mary authors a leadership development blog called Surviving Leadership (www.survivingleadership.blog) to continue the dialogue around the challenges of leadership – both being a leader AND being led.
