The Case of the Salary Bump
A sign company desperately wanting a new, but higher-paid employee faces a Catch-22.
IT WAS LOVE AT first sight. The first time Ishtar Yossarian saw Theo Chaplain, she fell madly in love with … his resume. Owner of M&M Enterprise Signs, Yossarian had spent months searching for the right employee to plug into the company’s growing electric-sign division.
Chaplain boasted the perfect skill set of experience and electric certifications, and after the interview, the personality, to boot. The only “fly in the eye” was Chaplain’s salary demand, which was significantly higher than that of other M&M employees. But Chaplain — fully confident of his value as a journeyman signmaker — held out for the same pay from M&M as he’d earned at his previous job. And he wanted his answer shortly.
At M&M Enterprise, the motto was “everyone has a share.” Employees had been compensated fairly, even well, until coronavirus restrictions put pressure on the company’s financials for a time. However, M&M was declared an “essential business” and when major installations largely resumed in 2021, the electric side took off, exacerbating the need for an experienced crew member to climb aboard and start “flying missions” — Yossarian’s expression for processing sign orders.
ABOUT REAL DEAL
Real Deal scenarios are inspired by true stories, but are changed to sharpen the dilemmas involved and should not be confused with real people or places. Responses are peer-sourced opinions and are NOT a substitute for professional legal advice. Please contact your attorney if you any questions about an employee or customer situation in your own business.
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Since the spring of 2021, Yossarian had been steadily increasing the number of missions per week for the employees. Work escalated to the point where the employees began to dread the Monday announcements where, “This week we will complete X more missions than ever before!”
Then 2022 arrived with its inflation, supply-chain disruptions, material shortages and other flak. Despite the growing workload, M&M employees had not seen a pay raise since prior to 2020. But surely a recession was looming in the coming year, counseled M&M CFO Donald “Doc” Daneeka. “Now is not the time to raise salaries across the board,” he said.
Yossarian met with Daneeka and electric shop Manager Blake de Coverley to figure out a solution. The owner impressed upon the pair, with de Coverley heartily agreeing, that this candidate was the only one who had come along in countless days of searching and, “Enough is enough; we need to hire him.” Daneeka conceded the need, but reminded Yossarian that Chaplain’s salary — as a new employee — would be higher than his co-workers’.
“So … if we hire Chaplain and it gets out that we’re paying him more — and it probably would,” Yossarian started. “We’ll be under even more pressure to raise everyone’s pay.”
“But if we don’t hire him,” de Coverley countered, “We miss out and start looking again, and for how long? Another hundred days?” He placed a weary palm over one eye at the thought.
“It’s a catch,” Daneeka observed. “A Catch-22.”
Yossarian let out a respectful whistle. “That’s some catch,” she said, “that Catch-22.”Advertisement
The Big Questions
- Should M&M Enterprise Signs hire Chaplain?
- Should they also raise everyone’s pay immediately?
- Or risk the move “bombing” with the current employees and “blowing up” company morale?
EDITOR’S NOTE: While we do not provide legal advice, we do want to share information that may help sign companies navigate tricky scenarios like the one in this Real Deal. Enacted in 1935, the National Labor Relations Act (NLRA) protects US employees’ rights to discuss their employment conditions — including pay — even if working for a non-union employer. “If you are an employee covered by the Act, you may discuss wages in face-to-face conversations and written messages,” according to the National Labor Relations Board. “… Policies that specifically prohibit the discussion of wages are unlawful.”
You couldn’t have presented a more real scenario — one which we are all facing right now. The equation comes down to the loss of business if this new, highly paid employee is not retained. At the same time that all businesses need operating capital, the government decides to raise interest rates. Payroll is the highest line item on any P&L statement. I won’t turn this into a political statement but the bottom line is, in order to survive, you have to borrow the money necessary to hire this key employee and give everyone on the team a small bump in pay. This, in turn, necessitates that you raise your prices. Low unemployment and high interest rates cause inflation; they don’t combat inflation. Politically incorrect or not, the fact is that it is very difficult to find good employees. Borrow money, raise prices and/or cut margins but hire the right team in order to ride out the coming storm.
Daytona Beach, FL
Personally, I feel that while it may hurt in the short term, the long-term income gained from having another experienced, highly qualified new employee will offset costs. More people, more completed jobs, more income. And I do feel every employee should get the raise. I also feel that the new guy should have to sign a contract, promising to stay at least one to two years. In these crazy times, employees need to feel valued, appreciated and confident in their job security! That won’t be the case if they’re not all brought up to the same pay rate as the new guy.
We had the same problem. Raised everyone’s base pay to match. We pay bonuses every month based on profitability, pretty much equal shares to everyone in proportion to their base pay paid for the month.
I’ve never seen in all these 30 years of being in this business, a company raising everyone’s pay based on hiring a new employee at a higher rate. Unfortunately, sign companies are notorious in paying the lowest wages compared to our counterparts in other industries. So this is what I do. I hire the new guy at the pay he wants. He will be put on a 60-day probationary period to see if he is as good as he said he is. After the 60 days, if he has lived up to his word, he stays at the given pay. If not, he is brought down to a pay scale that matches his capabilities. Be prepared to have all your “proof” ready if the employee does not live up to his reputation. As for the others, start this process again at their evaluation. Weed out the under performers. It may be time for the company to evaluate their labor and material cost to justify pay raises.
“I would hire the individual, and in two months increase everyone.”
This is a hard question to answer without understanding the company’s financial situation or sales outlook in more detail. I would suggest hiring the candidate on a 90-day contract or trial basis. Find out if he’s as good as he sounds. If yes, make the relationship permanent with a plan to have him train up more of the existing team. As their value increases based on elevated skills and productivity, the salary increases for other employees will be covered in decreased cost of labor.
If you raise everyone else’s pay, becoming unprofitable could ruin your business and that’s good for no one … But at the end of the day, you must protect your business and its future. When things finally settle down, and they will, there will be less business and your costs will go out of control and you could lose your company.
Each person should stand alone. With nine employees, I look at each one for pay raises. Showing up on time, how hard they work, what they know and [their willingness] to learn.
Bowling Green, KY
Raise everyone’s pay. To go that long without increasing pay for their current employees will at some point in the near future create a mass exit of employees for other opportunities at competitors. It will happen as wages continue to rise across the industry.
I would consider a bonus structure that might fill the compensation gap from the already existing employees. I would give the existing employees a small increase just to stay with the current inflation and increased cost of living.
Silver Spring, MD
Accept the fact that pay rates have changed significantly post-pandemic. If you have good people and want to keep them, why would you not ensure that their pay is commensurate with their peers? Larger companies often conduct salary benchmarks to compare their organization to others in their industry. Smaller companies might not be able to afford formal studies but we can pay attention to obvious signs in the market. I was recently … hiring a new person at a higher rate and recognized that he would be paid more than one of my trusted current employees. After doing a little research … it became obvious that my current employee’s pay was not aligned with where pay is now. I immediately changed their pay before I posted the new role. However, I also communicated that we needed to operate at a different level, so the bar was raised in terms of job performance. I created new responsibilities and expectations in return for the pay increase.
I have faced this same exact problem. Luckily, I just happened to mention to someone my problem and they knew someone who was not as qualified and I could bring on for about the same as the employees who had been here for a long time. Over the years I decided on giving less raises and more bonuses. This seems to work. The longer, more-experienced employees get more; the ones who do not care about their job or customers as much get less. No one knows who gets what and they have learned the harder they work, the more bonus they get because the company has had more sales and profit. I share more than most employers because without the employees where would you be? As an example, I have two that have been with me over 17 years, another 10 years and another five. The other employees come and go, but my main crew are happy. We all get along and respect each other.
The bottom line is what you can afford. If you can afford him and the raises and still make a profit, do it. If you can’t afford the raises, maybe smaller raises will work. We all must tighten our belts when hard times come, including the company. A recession will be hard on your staff, and even a small raise will be welcomed.
I had the same situation, except my guy had additional certifications that my current employees did not have. I took the opportunity (when asked) to explain that “if you get your certification(s), you will get X more dollars per hour.” My new guy was impressive with his experience, but it turns out that he did NOT have a current electrical license in our state, and was not going to try to get one, so he didn’t get his premium wage. He lasted six weeks and vaporized, no notice, no calls, nothing and now, not eligible for rehire. He stirred things up, but at least my crews know where they stand and what they have to do to grow themselves and the company.
Maybe there is another way to meet salary expectations with other perks not so apparent to other employees. Like more vacation days or PTO — maybe a commission on larger jobs he is directly involved in and clients he personally brings in. Definitely need to see how the new guy gets along with the rest of the flight crew before we go upsetting the entire organization.Advertisement
I feel that Yossarian should hire Chaplain at his desired salary and let him know that sharing his salary will bring discord to the rest of the electrical sign crew and will make his position very uncomfortable and possibly untenable. If Chaplain is so much better qualified than the other existing staff members, he may also be qualified to receive a lead position which would justify his salary increase, and in a position of leadership, his salary would not be something that should be shared with his subordinates anyway. I would go forward in hiring him regardless and deal with the fallout accordingly should it arise, Yossarian might deal with the desire for an across-the-board raise with a bonus system for extra efforts and productivity that will protect the owner should a recession cause a slowdown in workflow and revenues, but reward the workforce when the extra efforts are producing above-average revenue.
It is a very important decision. If you bring the new candidate on at their salary requirements, you will not only need to raise everyone’s salary who is in a similar position, [but also] then some. Not only is it not fair to do so, but any employee that notices a new hire making more or similar pay vs. their tenure will develop a morale problem that could spread and cripple the entire company. Another way to approach this is to bring the new candidate in on a tiered salary compensation, trial period. This would allow the chance to raise the salaries of employees in similar positions, as well as verifying through proof of production of the new hire. As far as the CFO, yes a recession is always on the horizon, and this way you keep growing, even though the cycle may cause layoffs in the future that no one knows.
If you need him, hire him at his rate; however, if overtime and some cash incentives will get enough done, don’t. No matter what you do or say, if you hire him, his pay rate will eventually get out to the rest of the crew and they could cause a world of harm to the business. So be prepared for a drastic rise in payroll.
North Charleston, SC
It is past time to give out raises where they are deserved. Over two years and the cost of living has risen dramatically. Not giving raises could cost you employees. They know it has been over two years since they have received a pay increase and may be looking at what else is out there. Raise your prices and give out raises. Not considering raises and hiring someone new at a higher pay rate is a terrible idea. Just take care of your employees and set things right.
Wagga Wagga, NSW, Australia
I believe if M&M Enterprise Signs wants to continue to grow and steadily increase the “Missions” they should commit to hiring Theo, but this should be driven by the overall business goals and the knock on effects of existing staff pay increases should be factored into the budget.
Sometimes less is more; if they are finding it hard to complete the amount of work they have and having trouble filling positions, there is also the option to stay at the same size and only service the customers or style of signage that is the best fit for their company. What is most profitable for the business?
Have the person applying for the position checked out. If he checks out to be a good employee and can create the profit you need, hire him. Every person working in the sign shop should be paid what they’re worth, no more or less. Whatever the inflation costs are, raise the percentage of your labor and product to that price and add another 10% more. Keep ahead of inflation.
A bonus is always a good incentive for workers to do their best. Create Servant Leadership. Servant Leadership begins with the ownership of the business.
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