When an employee is overpaid, salary lingo describes their base pay as a “red circle rate,” or a rate of pay that is above the maximum salary for a position. A red circle policy is a common approach to addressing this situation and allowing the market to catch up with the employee’s pay. Once red circled employees are identified, organizations normally freeze their salaries at their current level. In other words, red circled employees will not receive pay increases while their salaries are above the maximum salary range for their positions.
Some factors that contribute to implementing a red circle policy are:
- Change in market conditions
- Employees have long tenure.
- Job responsibilities decrease.
- Shifts in philosophy.
While the thought of freezing current employees’ salaries may seem too risky or controversial a move for your company to make, as long as you do it with a high degree of transparency and apply is equally across all departments and employees, it simply makes good business sense. Red circling can help you reach your long-term goals and is worth considering.
Further Reading & Reference:
1.HR Cost Cutting with a Red Circle Policy
Have a great HR day :)
Shared by - Maneesh M S, +Maneesh Muralidharanpillai ,Sr. Executive HR, Appollo Tyres Limited
