There are some organizations out there where Human Resources and the Compensation Department maintain control over exactly how much is offered to a candidate for employment.  HR uses a company-specific formula to decide the exact amount that can be offered to a candidate.  Front line managers are not able to override those decisions.  Appeals are judged by the original decision-makers.

“You’re authorized to pay $14.25/hr, but you can’t offer $14.50.”

In these instances a company’s employment procedure mandates that someone in Human Resources (usually a compensation analyst) assesses the value of a candidate’s background via a formula, a matrix or even a dartboard (tongue-in-cheek) to determine the amount of money that the line manager would be authorized to offer.

This assessment counts periods of time from the resume that the candidate has demonstrated certain skills or acquired particular experiences.  These “scores” are inserted into a formula or other decision-making process that in turn spits out “the rate.”  Qualitative assessment of such skills and experiences may not be a factor, but if so is not made by the hiring manager.

It’s also likely that salaried candidates are handled in a similar fashion, as would be promotions.

The rationale

What’s the reasoning behind such strict control of pay decisions?  In most cases a tight leash on managers was established due to a lack of trust between the senior leadership and those who manage the employees on a day-to-day basis.  It’s the leadership view that:

• Managers can’t be trusted to spend the company’s money effectively or efficiently

• Managers tend to make emotional vs. business decisions, therefore increasing company costs

• Tight budget control is necessary to ensure that inappropriate decisions don’t overplay available funds.

Over time, such a restrictive environment will have negative repercussions – for the manager, the candidates and ultimately for the business itself.

• Managers aren’t allowed to manage pay for their employees.  They do what they’re told.  This is where the finger pointing starts.

• Decisions about the worth of a candidate are made by “bean counters,” outsiders, and not those better able to assess the impact of a candidate’s background and experience.

• Internal equity can become distorted as policy over principle restricts managers from taking corrective action to balance pay between employee experience / performance levels.

• Managers aren’t allowed to develop professionally when missing a key element of their responsibilities.  The next generation of leaders is not being prepared.

• Managers lose faith in Human Resources.  HR becomes an adversary.

Is this a good practice?

Those who set the pay rates for the line managers run the risk of developing a “God Complex,” where the finality of their decisions is taken for granted.  Managers have little option but to comply, even at the risk of creating additional difficulties with their staff.  Over time such control can be abused (“absolute power corrupts absolutely”) by those following by rote policies, formulae or simply what they believe is appropriate pay.

Line managers are left struggling to cope with these decisions, to explain inadequate offers to candidates, to suffer through internal equity distortions that leave their staff vulnerable to external poaching, or simply to have their better employees start looking elsewhere.

Allowing managers to manage, to let them have more flexibility in the pay decision process, can be a win-win for everyone.

• Managers: greater opportunity to manage their staff and the company reward programs.  Greater opportunity to grow and develop as leaders.

• Human Resources: allow practitioners to focus on key issues, not the minutiae of everyday decision-making.  Such flexibility would increase HR credibility as advisors, not gatekeepers.

Give line managers parameters to work within (i.e., no offers above midpoint or below salary range minimum, no more than an “X” percent gain for the candidate from their last employer, no sign-on awards without approvals, etc.).  That would provide a degree of standardization without stifling creativity or the organization’s ability to attract the right caliber of employees.

Being forced to gain approval for every offer, for depending on HR to decide what the offer should be, diminishes the credibility of the manager in everyone’s eyes.

That’s never a good thing.