Q. What are some of the business culture/organizational behavior issues about which I need to be aware when implementing an exempt/nonexempt (salary/hourly wage) reclassification and how can I deal with them?
A. In July 2001, a jury awarded more than $90 million to 2,400 current and former Farmers Insurance Exchange adjusters because Farmers incorrectly classified their positions as exempt. Bell v. Farmers Insurance Exchange, Cal. Superior Court, No. 7774013-0, jury verdict 7/10/01. Suddenly, companies realized the huge liability associated with compensation policies that treated nonexempt (generally “hourly” employees) as exempt (generally “salaried” employees).
Unfortunately coming into compliance may require changing years, and sometimes decades, of ingrained compensation policies, creating serious organizational issues. My experience as a General Counsel for nearly 11 years, taught me that the method of compensation can affect the employees’ perceptions of how they are valued. Salaried positions are more prestigious and higher in the company’s hierarchy. Therefore, employees may react very negatively to the putative benefit of being reclassified as nonexempt, causing tremendous upheaval.
To limit this upheaval, you should ensure:
(A) The CEO’s “buy in” – reclassification cannot be viewed as simply a Human Resources issue. The CEO needs to fully support it. Failure to obtain the CEO’s support will sink the best reclassification program.
(B) Effective communication of the reclassification – the message must be effectively communicated that the reclassification is not about the prestige or importance of the affected positions.
(C) Proper structuring of the compensation method – there needs to be an analysis to ensure compliance is done with as minimal modification as possible.
(D) Proper reclassification implementation – sometimes a graduated implementation process can minimize the upheaval.