Green Circles Are Dangerous, Red Circles Are Just Expensive

In yesterday’s Advisor, consultant Terry Pasteris offered guidance on compensation metrics; today, dangers of Green Circles plus an introduction to the compensation guide that puts federal and state regulations at your fingertips.

Red Circle employees indicate you are spending too much on compensation relative to the value of the jobs, says consultant Terry Pasteris, CCP, GRP, but Green Circles may set you up for a lawsuit. Pasteris’s comments came at a recent BLR-sponsored webinar.

Red Circle employees are those who are paid over the maximum for the range established for their positions. They are paid more than the job is worth to the company, says Pasteris, who is president of TLMP Consulting Group.

There are a number of ways employees can become red circled, but the primary reason is that they have been in the job a long time and just keep getting raises that are higher than the increases to the range. If the ranges are well set and track the market regularly, red circles may indicate a lack of discipline in managing the system, says Pasteris. Managers just aren’t being tough about following increase guidelines.

Red Circles aren’t dangers to the company except that they are digging into profits. Green Circles are another story.

Green Circles are those who are paid under the minimum for the range. This typically happens, for example, when someone is promoted from a much lower position and managers don’t want to give a huge raise of say, 20 percent or 30 percent.

Generally, Green Circles have the potential to cause legal problems. If the Green Circle employee is a member of a protected group, the Green Circle status could look like discrimination and subject the company to litigation, especially if others in the same job are all paid in the range.

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You Shouldn’t Have Red and Green Circles … But

Generally, if the system is working right, you shouldn’t have any of these; however, says Pasteris, that’s not the way it works in the real world. You probably should address Green Circles immediately. At a minimum, have a plan to deal with them, says Pasteris.

With Red Circles, what you do depends on the reason for the high pay rate. If it is the result of a reorganization or reclassification of well-performing employees, you may tolerate the situation for a while.

Our Compa-ratio is 109

What if you have a very high compa-ratio like 109? asks Pasteris. That would mean that you are paying nearly 10 percent higher than your system says you should.

But take a look at tenure and age and other factors. For example, if your market positioning is where you want it (say, your strategy is to pay at the 75th percentile and you are paying at the 75th percentile), and you have a preponderance of long-term, seasoned employees, and your turnover is zero—that all fits together into an OK package, says Pasteris.

But it is a generous program, she concludes.

Red Circles, Green Circles, and compa-ratios—In HR, if it’s not one thing, it’s another. Like FMLA intermittent leave, overtime hassles, ADA accommodation, and then on top of that, whatever the agencies and courts throw in your way.

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