How Should We Adjust Salaries After Restructuring to Be Fair to All Employees?

Dear all,

I request your valuable inputs for the following issue:

Salary Restructuring and Increment Proposal

This is for an organization that has recently restructured its salary structure based on industry standards. I wanted to know how you would increase the actual salary of each individual.

For example, in Grade 1, the existing minimum basic salary as per the structure was Rs. 2,000. But after the salary review, the minimum salary was changed to Rs. 5,000. However, there are already people who are drawing Rs. 5,000 or more or even less in this grade. So, how much of an increment should we propose to these employees? Let's say there are 5 employees existing in this grade drawing a basic salary of Rs. 3,000, 4,000, 5,000, 6,000, and 7,000 already. How much percentage increase should we give to each employee?

The person with a Rs. 3,000 salary may have less experience compared to the person with a Rs. 4,000 salary. Therefore, we cannot set both of them as per the new basic of Rs. 5,000. Can you suggest a formula for computing the percentage increase in each employee's salary while also taking into consideration their total years of experience and the differential salary (where more experienced employees get a higher salary) that was existing before?

Awaiting your earliest response.

Regards,
JM

Dear JM,

Salary Restructuring: A Complex Matter

Salary restructuring is a complicated matter, as you have rightly pointed out. If this is not done carefully, employees may leave the organization abruptly.

Managing Pay Revisions Without a Scale

If your organization does not have a scale of pay for each grade, then it will be difficult for you to manage pay revisions. For example:

- Grade 1 Basic Range: 2000 - 5000
- Grade 2 Basic Range: 4000 - 7000

If you give a hike of Rs. 2000/- in Grade 1, then the scale has to change from 2000 - 5000 to 4000 - 7000. Otherwise, as you are facing, one employee may not get any increment at all. By following this approach, each employee will receive a hike of Rs. 2000/-. However, this is just an example, and you need to analyze the actual wage impact your company can afford before embarking on such an exercise.

Determining Wage Allocation

Therefore, I recommend that you find out from your management how much percentage of their sales they intend to allocate to their employees in terms of salary and wages and then allocate the increase in wages for each grade. While doing so, please also consider the direct and indirect expenses. Direct expenses refer to the actual increases you intend to provide, while indirect expenses are the earning heads that will increase due to the hike. For instance, if your HRA is linked as a percentage of Basic, then it will increase. Similarly, your PF and ESI employer share will increase. LTA or Medical reimbursement may also increase if it is linked to your basic salary. In short, calculate the CTC for each employee and then determine the wage package.

I trust I have clarified to the extent possible.

Regards,
M.V. Kannan