Sunday, March 31, 2013

Of salary negotiations and psychological contract: Part 5 ('batch mentality')

In this series of posts, we are examining the impact of salary negotiations on the formation and evolution of the psychological contract. In the first post in the series (see Part 1: dramatis personae) , we looked at the concept of psychological contract, outlined the stages at which salary negotiations take place and also looked at some basic principles in the domain. In the second, third and fourth posts we examined the salary negotiations between the employee and the employer before joining (see Part 2), after joining (see Part 3) and after submitting the resignation (see Part 4) and examined how these negotiations/interactions influence and are influenced by the psychological contract.

In this post, we will examine a special phenomenon in this domain – ‘batch mentality’. While this phenomenon is typically associated with MBAs, this can apply to engineers and other professionals also.

The dynamics of the phenomenon is simple - MBAs tend to compare their career progress with that of the other MBAs from their batch - even after many years of completing their MBA. This is especially true for MBAs from premier institutes who get hired as Management Trainees in reputed organizations – often at a higher responsibility level and at a higher salary as compared to MBAs from less reputed institutes. Since the salary is often used as an indicator for career progress, batch mentality has implications for our domain here (salary negotiations and psychological contract) – across the various stages of the employee life cycle.

In the hiring phase, the prospective employee might expect to come in at the same or higher salary level as compared to the employees in the organization who are from the same batch/similar batches. Sometimes, they state this upfront. Sometimes, they will just assume/expect that it will be done. That is when the trouble begins.

The batch (or the number of years of post qualification experience) might not be a good indicator of the capability of the employee – especially after a few years of completing the degree. Different individuals could have taken different career paths and this could have resulted in different skills and different experiences. Also the relevance of these skills and experiences vary significantly across organizations. However, in the absence of other measures to compare one’s capability level with that of the employees in the new organization, the batch serves as a useful indicator (or at least as a reality check) for the prospective employee.

In my opinion, the best way to deal with this is to be as open as possible with the prospective employee regarding how his/her experience and capability is being compared with those who are working in the organization. For example, if one is joining a consulting firm after a few years in internal HR roles, he/she might come in at a lower salary/lower responsibility level as compared to those who joined the consulting firm from the campus as management trainees. This happens because consulting experience might be of more value in a consulting firm. In such a scenario, it is much better to state this upfront and let the candidate take an informed decision on whether or not to join the firm. Similarly, if the firm has a practice of pegging the consistently high performing employees who have come in through the management trainee program at a higher salary level as compared to lateral hires with similar years of experience (even if they have studied in comparable institutes), this should also be stated upfront. Again, the candidates should seek specific clarification on these aspects if it is important for them and if the organization hasn't proactively shared those details with them.

Of course, some candidates might decide not to join. However, this is a much better scenario as compared to them joining the firm, feeling cheated, becoming disengaged and possibly leaving the firm fairly quickly. Please note that the organization  has also to guard against the possibility that existing employees (especially the consistent high performers who have come in through the management trainee program) might feel that their psychological contract has been violated if lateral hires (from same/similar batches) come in at the same or higher salary and responsibility level.

Similarly, employees who join the organization as management trainees, might display a tendency to compare (‘benchmark’!)  their career progress with others from the same batch of management trainees – even years after they have moved into different jobs (and different career paths) after completing the management trainee program. As we have discussed earlier, usually, these comparisons are not very valid – especially after a few years of completing the management trainee program. However, this does not prevent them from developing some sort of entitlement mentality (i.e. expecting that their salaries will also be increased/they will also be promoted along with the other management trainees from their batch).
To counteract this, the organization should make it explicit that once they complete the management trainee program, they won’t be treated as a batch and each person’s career (and salary growth) will be dependent on the performance, demonstrated capability, role, potential etc. Hence, it has to be communicated explicitly that no 'batch parity' will be maintained. Of course, a greater amount of transparency around the policy/process for deciding promotions and salary hikes will minimize the chances of the psychological contract being violated.

Please note that the employees will have a greater need to compare their salary and responsibility level with that of others, when they don't have better indicators to figure out how well they are doing in their careers (and to figure out if they are being treated fairly by the organization. Hence making these alternative indicators available (and educating the employees on the same) and also generating confidence in the people management processes governing salary hikes and promotions are critical in addressing the 'batch mentality'.

In the next post in the series, we will look at a some broader considerations related to psychological contract in business organizations.

Please let me know if you have any comments/suggestions at this stage!


Gouri said...

As long as you are a part of the rat-race, batch parity remains a perpetual shadow of an MBA degree. Companies are normally ranked at campuses according the offered CTC and there begins the compensation caste system.

One of the challenges companies face is when and how do they revise the offers at campuses- increasing the comp package would mean that senior batches would be earning on par with their juniors. How does this disparity affect the employee?

Some companies also offer customized compensation according to earlier work -experience of the students. This is another concept which can be debated both ways. Do those with previous work experience tend to be more committed to the organization and continue for a longer period? Or is it a cost-effective way of attracting talent at top MBA colleges.

I think the boundaries of the batch parities get blurred with career growth, role changes, and exposure. The fact remains that the ability of organizations to retain MTs for more than 3-4 years is highly limited today for various reasons.

Prasad Kurian said...

Thanks Gouri! Yes, the need to avoid pay compression (triggered by the need to increase the campus salary offers to be competitive on the campuses) creates an upward pressure on the salaries.