This week I worked with a board and management bearing their teeth at each other. Of course, they were polite and adhered to professional protocol. None-the-less, the frustration, anger and sense of betrayal added to battle scars on both sides that had thickened over years of wounds regarding the same issues. While the debate was about a requested labor budget, in my opinion, the real issue was that neither side believed the other side had their best interest at heart. Neither party was being forthright about the core issues of trust, fear, and feeling unappreciated. Add in the inability of the board to get past thinking about what was going on in their military industry that hadn’t seen a raise in several years, and this situation had the markings of a good Hatfield and McCoy conflict.

During the past several years while the credit union had been unprofitable under a different senior management team, employees continued to get pay raises. True, the defined benefit plan had been frozen and the annual bonus went away, but employees still enjoyed other richer-than-market benefits; such as paying 75% of the family health insurance and giving 13 days of personal time off annually. Yes, positions had been cut and others not replaced when employees terminated; thus “the lucky ones” were left to take on more responsibility. Well-publicized, similar scenarios have played out across the country. This was business in the new economy, right? Shouldn’t the employees feel lucky to have a job in such a nice environment?

Last year, the credit union was finally profitable and netted $1.3 million dollars. The management team, under the opinion that they were all underpaid, thought, “Finally, we will get our just desserts!” The board approved a bonus of one week’s pay for all employees. Rallying on behalf of her hard working senior managers, the CEO obtained approval for an even larger executive bonus. Still the overall mentality of executives and employees alike was that they were grossly under recognized, under appreciated and weary of having compensation stripped from them. The CEO, herself, had a base pay that was $18,000 under the minimum and received no bonus.

Both sides, in essence, secretly and sometimes not so secretly accused the other side of not having the best interest of the credit union at heart.

The board hired me to market price and conduct a position evaluation on every position to determine the appropriate salary range. My findings were that the credit union as a whole was paying almost exactly at the 50th percentile. Of course, the devil is in the details, and some employees would merit a corrective action to make their pay levels more equitable to their midpoint. Less than a handful had pay levels over the maximum of their range. After thoroughly questioning me, the board seemed to buy into the methodology and findings, and even hired me to do another compensation project.

Things were proceeding so swimmingly, you can imagine my surprise at the next evening’s board meeting, when the CEO requested a 2% labor budget; which is 1% lower than the projected average 2014 labor budget for financial institutions, and was met with a 3 hour debate. It ended with the board telling the CEO she could have her 2% labor budget increase, but would have to cut out the $18,000 it would take to bring her own pay level to the minimum of the range out of her employees labor budget. They made it her decision to either pay her employees the basic market rate movement or take it out of her own salary needs to be paid at least the minimum of the range. (She had worked there as CEO for 7 years).

With a 2% budget, management had no resources to differentiate the salary increase between average and outstanding performers.

While I was on-site, I got a clear idea of how each party viewed singular events very differently. Pissed off and frustrated senior managers felt the board micromanaged and didn’t appreciate them. Board members unreservedly articulated what a fantastic CEO and management team they had. From management, I heard of how no one got a raise last year; they only got a lump sum (equivalent to what the raise would have been). The board told me how they gave one week of pay as a bonus for turning things around. Management told me how much it hurt to have the board accuse them of recommending labor budgets and benefits to benefit themselves and not the credit union. The board told me the CEO always brought up requests during the last 30 minutes of the meeting so she could ram things through when their guard was gone. Management felt the board said they only wanted to understand the methodology and to feel they were performing their fiduciary responsibility, but then didn’t take the advice of the consultant they hired, even when they had all the information in front of them.

Both sides, in essence, secretly and sometimes not so secretly accused the other side of not having the best interest of the credit union at heart. This had gone on for years. Both sides left the meetings undoubtedly still not trusting each other and feeling deflated. The wedge between them deepened and their inclination to communicate openly about the issues of the heart collapsed.

With a 2% budget, management had no resources to differentiate the salary increase between average and outstanding performers. This undoubtedly sent the message to an already demoralized employee population that better performance doesn’t really matter. Additionally, there wasn’t enough money in the budget to move employees whose pay was low in their ranges, closer to their midpoints; making the company a training ground for their competition.

Clearly both sides had valid points, but vastly different perspectives. Moving forward, as long as neither party engages in honest dialogue about the fear of returning financial struggles versus the need for employees to feel valued and rewarded, this group will forever feign a need for more market data and statistics, without identifying a process and balance where both sides’ needs are met.

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