At an intellectual level we all realize that HR is part of a bigger system and we know (hope) that decisions we make have impact beyond letting people know that some administrative change is taking place. But, how much appreciation do we have for the potential far reaching consequences of new policies?

A case in point was the decision by a company in Seattle to make their minimum salary $70,000 per year (read about it here). I’d prefer not to debate the wisdom of the decision or the politics of raising the minimum wage. What I do find interesting isn’t so much the backlash from some in the business community as the unintended consequences within the company.

Like it or not, salary confirms status and changes to it are thought to reflect the value people bring to the company. So, if an entire group of people gets a raise to the same level, it can be interpreted as the company as saying that every employee brings equal value, which is unlikely. Of course, another view is, “We’re setting a new starting line. After that, raises will be merit based.”

The company experienced some issues with senior staff. Some began to ask, “Why should people who don’t contribute as much as I do suddenly make nearly as much as me?” The article doesn’t measure total compensation (do higher level managers get stock options that the $70,000 employees don’t?), but again how we see that self-worth is linked to salary. Employees definitely consider how much they are paid compared to others and compute their version of internal pay equity.

I suspect that the most surprising consequence was the impact the decision made on customers. Some ranged from sensing a socialist plot (which I thought was a strange comment given that a for profit company was making a business decision of what to do with their capital) to very libertarian (“He takes care of his business, and I’ll take care of my business.”). This tells us that corporate policies often leak through our four walls. We are used to having this impact second hand. For instance, policies that lead to higher engagement lead to better service. But, customers who learn about compensation and other policies wonder how those will affect them (how will this affect my costs and service?).

This case is instructive in that it teaches us to consider the effects of HR decisions on large systems. These systems not only include employees not directly affected by the change, but also customers and suppliers. Organizations do not operate in a vacuum and we should not forget that.

For more information on planning and implementing change, contact Warren Bobrow.