Cautionary tale on compensation rescinded

Hard lessons from latest saga at eHealth relevant for private sector
By Claudine Kapel
|Canadian HR Reporter|Last Updated: 07/18/2011

The eHealth Ontario compensation saga is a tale of promises made and rescinded that highlights how even well-intentioned pay decisions can have unintended consequences, if not handled with care.

And while this particular tale unfolded at a government agency, the themes are relevant to anyone involved in making compensation decisions.

The abbreviated story is hundreds of employees at eHealth, an agency set up to manage Ontario’s electronic medical records, were promised merit increases and bonuses in recognition of the progress made in turning around the troubled organization. (For more information, see “Pulling back bonuses has its perils: Experts.”)

But the announcement spurred critics to argue such compensation awards were inappropriate at a time when the provincial government has pledged a two-year wage freeze for public sector workers.

Notwithstanding arguments the wage freeze is not backed by enabling legislation, and has been successfully challenged through arbitration, there was still an expectation all government agencies, including eHealth, would abide by the province’s commitment to a wage freeze.

In response to the outcry, eHealth rescinded its promise of pay increases and bonuses, no doubt to the great chagrin of employees.

The story highlights the turmoil business leaders can create when they fail to follow organizational directives.

Regardless of how well-intentioned the plan for pay increases and bonuses may have been, leaders who do not toe the line when it comes to organizational directives are, typically, reined in quickly. This is because most organizations recognize inconsistent practices erode the meaning and application of governing rules and protocols, opening the door to ambiguity, weakened decision-making, leadership credibility issues and fairness concerns.

Despite the strong media attention surrounding the eHealth story, the reality is the private sector is no stranger to departures from protocols or organizational directives. Here, too, we find leaders who stray from policies and procedures — or who don’t get the appropriate approval before making commitments — in the arena of compensation.

How many times has a line manager told you he has already spoken with or made a promise to an employee that he has not properly vetted and approved in advance?

So what can human resources professionals do to help leaders speak with one voice in matters of rewards management? Some common sense practices include:

•‑ensuring there are clear and well-documented policies that address how compensation programs are to be managed to support consistency in pay administration

• ensuring leaders are clear about the approval process for pay recommendations and how pay decisions are made

• providing leaders with training that covers both the operation of compensation programs and the role of leaders in managing pay

• helping leaders understand the potential consequences of inconsistent pay decisions, including the potential impact on employee trust and morale and the potential erosion of regulatory compliance

• reviewing pay recommendations to ensure consistency within and across departments or business units

• holding leaders accountable for sound pay administration.

As for eHealth, the saga is far from over. Assuming the decision remains firm to rescind the merit increases and bonuses, the organization will still have to contend with the employees’ reaction to their loss.

Claudine Kapel is principal of Kapel and Associates, a Toronto-based human resources and communications consulting firm specializing in the design and implementation of compensation and total rewards programs. For more information, visit www.kapelandassociates.com. She is also Canadian HR Reporter’s compensation blogger. To read her weekly columns, visit www.hrreporter.com/blog/compensation-rewards.

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