Compensation Waste 101 – Extra Pay for Covering Vacations

 In Compensation

In this series of posts, I’ll identify practices in organizations that may be a waste of precious employee compensation resources.  Today I’ll cover a policy I ran into recently while talking to one of my clients, one that I hope will soon be a “former policy” for them — the practice of paying employees extra while they cover for their supervisor or manager during vacation or other short-term time off.

Policies that pay extra for covering for the vacationing boss typically take one of two forms: (1) employees receive some sort of premium over their current pay (e.g., 10%, 20%), or (2) employees receive pay comparable to the supervisor/manager while they are in the role.  Thankfully, the former is much more frequently seen among this example of compensation waste.

Before getting to the theory and fallacy of the concept, it’s important to really understand the cost implications of this kind of policy.  A typical supervisor or manager is likely to have at least three weeks of vacation per year.  Let’s assume that the typical organization has a supervisor:employee ratio of about 4:1.  If your organization has 200 employees, that means about 40 supervisors, 600 days of vacation (that’s more than  two people’s worth of time, by the way), and roughly 4,800 hours that would be subject to potential premium pay.  Assume your average employee earns about $22/hour (based on our analysis of client payrolls), and further assume your “premium” is 15%.  That’s $3.30/hour, or $15,840 a year.  Likely not quite half an employee, but about .2% of payroll, and money you could certainly use elsewhere.  At this point it should be pretty obvious that you don’t even want to calculate the cost of paying the missing managers’ pay a second time.

Now on to why you shouldn’t consider spending that particular 0.2% of payroll.

One school of thought says that you should pay more to people who are doing more, and that when an employee becomes a supervisor or manager, even temporarily, they are doing something more and should be compensated accordingly.  Let’s be frank – when a manager goes on vacation, there is no expectation that one of the subordinates will step into his or her shoes and actually do the work of the manager.  As an employer, we are hoping that someone we temporarily put “in charge” will simply keep the ship from sinking, assuming they will be doing anything at all beyond their normal work (and some will argue that the entire department will be a little less productive because the boss isn’t around).

A good manager will have cleared the desk of anything important, scheduled meetings and meeting preparation for safely after he or she returns, and will likely be only a cell phone call away in case anything serious actually happens.  While we all like to think our jobs are essential, there really are few things that can’t wait until the boss gets back.  The “fill-in” won’t be attending management meetings, or participating in committees, or performing any aspects of management at all.  Even in a “supervisory” situation, the fill-in will not really be responsible for discipline.  Real problems will be relayed to a higher-level manager who will take care of the situation.  The bottom line is that a fill-in is really only responsible for making calls on situations that will be pretty obvious, and if its a senior person in the department, its unlikely that they will be calls the person hasn’t made before.

The bottom line on the “pay more for doing more” argument is that the argument just doesn’t hold water.  We’re already paying the managers as if they were there, and we’re expecting that they will do their job the way they should, which includes making sure that they won’t be needed while they are gone.  Considering that we’re already got about 10% of the manager’s payroll invested in time they aren’t working, adding another few thousand dollars to the cost of paid-time-off doesn’t make a lot of sense.

The second argument for paying a premium is that we need to do it to get people to volunteer to take the job.  Two things immediately come to mind.  One goes to the heart of the theory, which probably developed in some sort of manufacturing or mining environment where supervision is rough and taints the person in the eyes of their colleagues.  Given that the job really won’t involve much more than answering the occasional question and settling the rare dispute, there really isn’t going to be anything negative about taking the job.  The typical supervisory environment is not like a shop floor where rough tempered guys are constantly trying to get away with not working and sabotaging the equipment, and where the tough decisions you make to take disciplinary actions will make you a pariah once the boss comes back.  Yes, the sarcasm was intended.  The type of decisions that would make a temporary supervisor a pariah are going to be few and far between.  Even if those situations were to arise, management would not put the burden on a temporary supervisor to make that kind of call.  There’s simply not going to be a reasonable reason that you won’t be able to find someone to step in, and its likely that employees understand that it is a requirement of their job, if for no other reason than the “all other duties as assigned” phrase that is tacked on to the bottom of just about every job description.

Something even more important to consider is that when an employer gives an employee the opportunity to step in and act as a supervisor or manager, it is providing the employee with the opportunity to add something to a resume.  Given the number of want ads that say “supervisory experience preferred,” even the rather illusory experience that is gained will have value.  Certainly within the organization, an employee who steps up to the proverbial plate will be remembered as the one with the right attitude, and having a positive report in a personnel file will be a factor when a real promotional opportunity comes up.

The argument that you have to pay someone to take that temporary management role thus falls for at least two reasons: (1) filling in is an expected part of the job that isn’t going to cause any compensable stress, and (2) the management experience itself has value beyond any cash compensation that might be paid.

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When it comes to spending anything more than a fair and equitable salary or wage, it’s essential to ensure that there are good reasons to do so, and that an employer benefits from the extra cost.  In the case of premiums for temporarily stepping into a supervisory or management role, it just doesn’t appear to be worth it.