I would like direction on how to determine additional premium pay for employees with certifications, such as a Certified Public Accountant. Is there a general rule or guidance on determining premium pay? I appreciate your help. — Allison in Sacramento
Sometimes premium pay is tied to shift work, temporary assignments in other locations, or other temporary work situations, such as filling in for a vacationing co-worker. These “premiums” can be specified as cents per hour for hourly employees or as a percentage of job value for other jobs. Generally, these payments are set out in a policy to ensure that all employees are treated fairly under the same or similar circumstances.
However, you suggest offering premium pay as a form of recognition for individual employee qualifications. The first question to ask is whether premium pay is the right answer. Premium pay is sometimes paid, either as an add-on to base pay or as a separate one-time-only and/or ongoing cash payment, to compensate an employee or class of employees for earning a professional certification. These kinds of payments are often ill-advised because they can lead to misperceptions of the basis on which pay decisions are made and can also result in pay inequities. My advice would be not to give premium pay at all under this circumstance but to consider the following options instead.
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
There are three key determinants of differences in employee compensation: 1) the job itself, 2) the employee’s competencies, and 3) the employee’s performance. The acquisition of a professional certification and/or degree is expected to contribute to the employee’s competencies. Competencies are a means, not the ends, of performance.
Most base pay plans are structured around job classifications that reflect the labor market and internal values of the jobs themselves, independent of the actual people holding those jobs. One factor in evaluating jobs is the set of knowledge, skills, and abilities required of anyone holding the job. Those skills presumably are the result of education, experience, and/or specialized training. If a professional certification is a job requirement, one would expect the employee already has this credential.
It’s more common, however, for the employee’s job not to require the certification, although it may be “nice to have.” In such cases, we advise our clients to look at the individual’s job to determine what additional responsibilities and/or higher level functions he or she will be expected to perform because of the new certification. If these new responsibilities are significant and in the employer’s best interests, it may make sense to reclassify the job to a higher pay grade and adjust the salary to reflect what is essentially a “promotion-in-place.” On the other hand, if the job has not changed as a result of the person’s new qualification, one must ask why it is worth any additional pay at all.
It may sound logical to link a premium payment with acquiring a certification, but this may not be such a good idea if internal pay equity is desired. For example, is it company policy to recognize all employees or only some who achieve any form of certification with a form of premium pay? If so, why? Can a policy be uniformly communicated and applied? Also, what types of certifications would qualify for premium pay? Would they have to be job related? What if the CEO’s executive assistant acquired a Senior Professional in Human Resources certification but his or her job is unrelated to the human resources function?
Also, keep in mind that if the professional certification enables the employee to improve performance results, his or her pay can also reflect that improvement in the form of incentive bonuses and/or how his or her salary is set relative to the value of the job.
It may be simplest to give a one-time-only reward to employees who achieve an educational milestone and/or a certification. The company can throw a party, run an article in the employee newsletter, or present a token of appreciation during a meeting. All of these things can be done without upsetting the compensation plan’s integrity.
Shari Dunn is managing principal of CompAnalysis, a compensation and performance management consulting firm in Oakland.