Survey Results: Is The Earth Moving Under The Annual Merit Increase? (The Conclusion)

Has the time come to shake up the annual merit increase?

Yesterday we began coverage of our survey findings where 124 compensation and HR professionals provided their answers to that question, based on what is happening in their respective organizations.  We learned that while most respondents' organizations are not considering changes to their annual salary increase policies beyond tracking and responding to competitive salary increase levels, a sizeable minority (34%) are attempting to break new ground.  We learned that smaller firms (<500 FTEs) may be leading the way in this regard.  We learned that there is still a lot more talk than action happening, with  three times as many organizations considering changes as have already planned or implemented them.

And we also learned something very interesting: that the kind of changes being talked about are quite different than the kinds of changes being planned or implemented.  Take a look at the tables below.  Notice that differentiation tops the options being considered, but it drops to a distant third when it comes to those that have been already implemented.

 

These data show that differentiation is the option most under consideration, cited by over half of those who have something “shaking.”  (Differentiation, you'll recall, was described as moving from a one-size-fits-all to a more selective policy that differentiates salary increase opportunity in response to mission critical skills, job value or other factors.)  Differentiation, however, comes in second to Shifting from Fixed to Variable where plans have been put in place to move forward in the next 12 to 18 months.  Differentiation comes in a distant third to Shifting From Fixed to Variable and No Longer Annual when it comes to changes that have already been implemented.

The upshot?

While the earth may indeed be starting to move under the annual merit increase, there appears to be more talk than action at this time – more organizations are discussing or considering changes to their annual salary increase policy than have actually made near-term plans or gone forward with implementation.

It is also very interesting to note that the options being discussed and considered relative to changing the annual increase practice are different than either plans that are underway or changes that have already been implemented.  What’s driving conversation, but not yet a lot of action, is the notion of differentiation.  As organizations look to the future and reflect on how to best direct the spending of precious base salary dollars, they are increasingly coming to the conclusion that this longer term investment must be done in a manner that responds selectively to business and talent needs (versus “one salary opportunity fits all”), helping to cultivate and craft the workforce needed for tomorrow’s success.  Yet, very few respondents have made definite plans or taken the first steps to put a truly differentiated salary increase approach in place. 

Why?

There may be a number of roadblocks, but a most likely one is that those charged with managing and supporting salary policy do not yet have the data or the analytical tools in place to define and categorize their workforce in a manner that supports differentiation in salary increase opportunity.  There is a tendency, among reward professionals, to focus on external benchmarking and competitive practices at the expense of looking more deeply within, and developing a more empirical understanding of our own workforces.  And so while we appreciate and value what differentiation has to offer, few of us may be in a position to execute on that potential.

Instead, those moving forward with definitive plans and implementing changes are focusing on shifting some of their available salary increase dollars into variable pay opportunity and extending salary increase timing to a period longer than 12 months.  These moves may help reduce some of the pressure on salary increase budgets, but do not demand the kinds of sophisticated information and tools that differentiation does.  They also fall somewhat short of the more strategic impact that a well planned and executed differentiation approach might deliver.

That's my take on the survey results.  What's yours?

Survey Results: Is The Earth Moving Under The Annual Merit Increase? (Part 1)

Has the time come to shake up the annual merit increase?

Should we move away from the one-size-fits-all, same-for- every-employee merit matrix to something more differentiated, more strategic? Reconsider the "once each year" timing and look at other, particularly longer, alternatives? Get serious about shifting some portion of this annual base increase over to some sort of variable opportunity?

There has been a lot of discussion around these questions, but how much real action is being taken? Last month I launched a brief survey in order to find out.  Many thanks to the 124 compensation and HR professionals who responded; survey reports have been distributed to all participants who requested them.  Today and tomorrow, here at the Force, we'll cover the highlights of the surveys findings.

Findings: A Minority Breaking Ground?

Survey findings suggest that there may be more talk than action at this point, but there is also evidence of movement underway. 

Most of the respondents indicate that their organizations are not considering changes to their annual salary increase policies beyond tracking and responding to competitive salary increase levels. A sizeable minority (34%), however, are saying that their organizations are considering or planning changes.

Who will lead the way?

While breaking the study respondents into organizational size groupings by FTEs yields sample sizes too small to be either statistically valid or clearly conclusive, it is interesting to observe that the smallest size group (<500 FTEs) is nearly twice as likely as either of the larger size groups (500-4,999 or 5,000+ FTEs) to be considering or planning changes to their salary increase approach. 

Many in the reward profession (particularly those in positions of power) hold fast to the belief that innovation typically happens at the largest employers, because they have the professional staff and the means to be creative.  These findings raise the possibility that the opposite may be true, that smaller organizations who may not even have reward specialists on staff (and thus might not be hampered by “conventional wisdom” or a traditional rewards perspective and education) may be more willing to react directly to the needs and opinions of business leaders.  

Whether a valid conclusion or not, it is intriguing to consider.  Perhaps we in the reward profession would benefit by stepping outside our echo chamber and learning more about what is happening in smaller, more entrepreneurial organizations.

So, what shakes?

Next, we take a closer look at the one-third of respondents who are considering, planning or have already implemented changes to their annual salary increase policy.  We asked these respondents to select from among the following four options to describe the changes being looked at or pushed forward by their organizations.

1. Differentiated. Moving from a one-size-fits-all (or mostly so) to a more selective policy that differentiates salary increase opportunity in response to mission critical skills, job value or other factors.
2. No Longer Annual. Moving from an annual increase timing to something less frequent and/or that varies based on certain factors.
3. Fixed to Variable. Moving to shift some portion of annual salary increase opportunity to a variable/incentive award opportunity.
4. Other.

Then, for each of the above, we asked respondents to tell us whether that option was (at their organization):

1. Not being considered.
2. Under consideration.
3. Planned in the next 12 – 18 months.
4. Already implemented.

More Talk Than Action

Respondents confirm that there is more talk than action happening at this point.  As the table below shows, there are three times as many organizations considering changes as have already planned or implemented them.

But here is where it gets interesting.  It turns out that what's being talked about is quite different than what's being planned or implemented. 

Intrigued?  Stop by tomorrow for Part 2.

Note: If any survey participants have not received their complementary survey report, please feel free to contact me at abares@alturaconsultinggroup.com

Remote Workers and Geographic Pay

All the debate prompted by first Yahoo's and then Best Buy's decision to end their telecommuting/flex work programs reminded me of a great podcast released a few months back by WorldatWork, facilitated by Alison Avalos and featuring practice leaders Rose Stanley (work-life) and Jim Stoeckmann (compensation).  The podcast addressed a question I hear frequently: whether and how to apply geographic differentials in compensating remote workers who are located in higher paying regions than the rest of the organization's staff (or at least the worker's particular organizational cohorts).

Brief background.  Geographic differentials, of course, are the mechanism by which we pay employees in some locations differently in order to reflect geographic differences in competitive salary levels.  (Notice that I said differences in salary levels, not differences in cost of living.  Critical distinction.)

As the WorldatWork team notes, the question comes up in two ways with respect to remote workers.  It will come up in response to a general workforce strategy involving remote work, proactively chosen and pursued by the organization.  Or it can come up on a more case-by-case basis, typically in response to the request or circumstances of a particular employee, in an effort to accommodate and retain that worker.  The former clearly demands careful consideration of business priorities, competitive demands and costs, at the organizational level.  It is the latter, however, that I want to focus on here.

The case-by-case scenario comes up for a host of different reasons.  A common situation involves a valued employee who must relocate, as the result of a spouse accepting employment in another area, an aging parent demanding care and attention, or any number of things.

Jim Stoeckmann's position -- and I agree with it -- is that there isn't (and shouldn't be) a one-size-fits all policy for these situations.  It may be wise to establish a "default" position (I'd propose that an employee whose remote work location is at his/her own election, and not the company's request, not be paid at a higher level if their election takes them to a higher salary city), but it is also worth retaining the flexibility to respond to a specific employee and their case.

Where there are concerns about retaining the employee or where the employee has critical skills, fills a key role or is at high risk of being recruited away by an organization willing to pay the local upcharge, it might be worthwhile coming to a compromise.  Jim mentions "splitting the difference" as a good option for situations like this.  Depending on the risk, it may be smart to do even better.

Regardless of whether the bigger pendulum of remote and tele-work continues to swing out or stalls somewhat in the wake of the Yahoo and Best Buy announcement, I believe we'll see a continued rise in the case-by-case requests generated by the conditions facing individual employees.  Are you prepared to address all the pay implications of this trend in your organization?

Is The Earth Moving Under The Annual Merit Increase?

There are rumblings underfoot among compensation and HR professionals concerning the once sacrosanct annual merit increase and whether the time may have come to (really) shake things up.

Should we be moving away from the one-size-fits-all, same-for-(nearly)every-employee merit matrix to something more differentiated, more strategic?  Is it time to reconsider the "once each year" timing and look at other, particularly longer, alternatives?  Should we finally get serious about shifting some portion of this annual increase in fixed base over to some sort of variable opportunity?

Do we stick with the tried and true?  Tinker around the edges?  Ditch the whole deal in favor of something more agile and aligned with business reality?

I'm hearing a lot of conversation and getting a lot of questions, but not yet noticing a lot of action being taken.  And so, in an effort to help all of us get a better bead on this, I'm kicking off a quick survey to see whether we can collectively get a sense of the movement.

Please take a quick minute to click through the link below and respond to the short questionnaire... and please also share it with a colleague or two. 

Click here to take survey

I'll share the results here.  Will also happily provide a brief written report (.pdf) with any participants who request it on the questionnaire.

Thanks!

Creative Commons image "fault lines from helicopter" by wharman

Navigating the "Open Salaries" Movement

There is a movement underfoot, particularly among start-up firms and profiled this week in a Wall Street Journal article, to open up business information that has traditionally been closely held.  This includes not only financial and operating data but also information on individual hiring decisions, salary and bonus details, and employee performance appraisals.

While I remain conflicted about complete pay transparency, I do believe there are some basic conditions and ground rules that can be put in place to maximize the odds of "open salary" success.

Find out more at my Compensation Cafe post today -- and share your take on the "open salaries" movement!

Creative Commons photo "Open Window" by glennalicious

Are Salary Ranges Still Relevant?

Our salary ranges are not serving us as well as they once may have.  We know it.  Unhappily, most employees know it, too.  My Cafe colleague Margaret O'Hanlon called attention to this reality last week in her post Do You Know What Your Salary Ranges Mean?

Margaret notes that the traditional salary range model, which communicates the essence of the deal we offer employees, no longer delivers on its purported promises.  This is tough to deny and not hard to understand.  The salary range architecture most organizations use today gained much of its popularity in a period when base pay was moving at a much faster pace (e.g., 8-10% annually in the late 70's and early 80's compared to the tepid 3% of today). 

But what I found particularly interesting was the debate that popped up in the comment stream to Margaret's post.  At its essence, as I read it, the central question raised was this:

Do - should - salary ranges still reflect the cornerstone of the employment deal in that they outline and communicate the rules for setting and growing base pay?

OR

Are they an antiquated theoretical construct whose time has come and gone, an idea no longer in step with the realities of the real world?

My thoughts?  Yes ... and yes.

I've had the chance to work with many organizations who don't have a formal salary structure, either smaller organizations yet to put in place any pay rules and policies or more established businesses who have (at some point) ditched their structures in an attempt to foster more "flexibility."  What I've found, more times than not, is that salary decisions in these places are all over the map, with little rhyme or reason, and often made in response to pressure (employee complaints or implicit/explicit threats of leaving).  And everyone knows it.  Especially the employees.

With salary dollars being in scarce supply today and likely for the foreseeable future, having a salary structure in place ensures that there is a "median" and a set of guard rails to prevent pay decisions from falling too far off the road. And perhaps more importantly, and to Margaret's point, having a salary structure in place typically gives employees at least a minimal amount of assurance that there are rules which are followed and that salary decisions aren't based entirely on whim, favoritism or discrimination.

And yet, clearly, our long-held model of base salary management is falling out of step with business and economic reality.

Where do we go from here? I don't believe that ditching structure entirely is an answer.  Broadbanding taught us that less is not necessarily more (or is it that bigger isn't necessarily better?).  Tighter salary budgets, if that is our longer-term reality, might call for tighter ranges - but will these fly in today's fast-paced and fluid reality?  Do we move toward a newfangled mash-up of pay steps and ranges?  Does this issue portend the long-awaited, often-touted death of the job and the corresponding advent of person-based pay? 

What are you seeing .. and what's your take?

Creative Commons image "Dinosaur Adventure" by Dave Catchpole

How Does Development and Innovation Happen in Compensation?

How do we come to understand the conditions in which a bonus plan is likely to succeed or fail?  How do we learn to read the landscape and understand the pain points that might be causing employees to feel that their salaries are unfair.  When things go south (as they often do), was it the design, the implementation, the communication or something else that sent them there?

How do we learn in HR and Compensation?  How does innovation and development in our fields happen?  Does academia and research inform real-life practice ... or is it really the other way around?

And what do birds have to do with any of this?

The answers (or at least some answers) to these and other questions in my post today at the Compensation Cafe!

Creative Commons image "Playful Subsumption" by jurvetson

 

Outrage and the Highly Paid

Why do so many of us get so bent out of shape about CEO compensation, but not about that of other relatively highly paid people?

That is the central question explored by Cornell University's Kevin Hallock in his December workspan column "research for the real world", where he compares the growth in pay at the 95th percentile (top 5 percent) for CEOs and average U.S. workers to that of athletes in Major League Baseball, the National Basketball Association, the National Football League and the National Hockey League.  From 1995 to 2010, pay for this group of U.S. workers grew 69% while pay for the CEO group increased by 240% (one of those statistic that often provokes outrage).  But pay for top NBA athletes also grew by 240% during that period, and top paid athletes from the other major sports is shown as growing at rates substantially above the U.S. worker (with the 95th percentiles of pay for the NFL, MLB and NHL players rising 200%, 175% and 125% respectively). 

Why don't we hear comparable cries of outrage over those stats?

There are other fields of endeavor beyond business and sports where people are highly paid, and where the gap between average and top earners is similarly wide.  As examples of this, we can consider some of the figures that Forbes provides us for top earners in acting, writing and music.

Tom Cruise, as the top paid actor on Forbes list, earned an estimated $75 million in 2011. His female counterpart, Kristin Stewart of Twighlight fame, earned an estimated $35 million.

The two highest paid authors, James Patterson and Stephen King, earned a healthy $94 million and $39 million, respectively.

In music, Sir Elton John topped the list at $100 million, with Lady Gaga close behind him at an estimated $90 million.

This when plenty of actors, writers and musicians are earning practically nothing.

Why do we find the high pay of one group of workers -- CEOs -- so much more inflammatory than the high pay of others?  Kevin Hallock shares a few potential hypotheses in his column.  Could it be that CEO salaries are simply better known and more widely reported?  Is it because most people have a clear sense of the limits of their own athletic (or acting, writing or musical) abilities, where the "gifts and talents" a top executive brings to the table are harder for most of us to discern and appreciate?

What's your take? 

Image courtesy of themaroontiger.com

Global Salary Forecast: Latest/Greatest via Infographic

Still working on those international salary increase budgets and policies?  The infographic below, which comes to all of us courtesy of Hay Group, is chock full of statistics on global salary increase projectsions.  The data, representing the firm's most up-to-date salary forecasts for 2013, was drawn from the Hay Group PayNet which contains information for more than 14 million job holders in 20,000 organizations across more than 100 countries.

 

Learn more (and get a crisper look at the infographic if you're experiencing any trouble here) at Hay Group's atrium.

Give Employees the Gift of Cash Clarity

Your organizations may be in the midst of planning holiday parties, gifts or special perks -- but know that cash is what's top of mind for employees as the year's end draws near.

A just-released survey by Glassdoor of more than 2,050 U.S. workers shows that what employees want most from their employers during the holidays -- by a significant margin -- is cash bonuses and salary increases.  Results of the survey are summarized in the table below.

This isn't to say that employees don't want to be recognized and appreciated with gifts and perks, or that they don't value flexibility and time off.  They do, of course.  But as economic (and, for many, employment) uncertainty lingers, the sense of financial security associated with cash appears to be trumping everything else.

So knowing this, what are we to do?

For those without boatloads of money to give out at year-end, I would suggest that one of the best things you can do for your employees is to offer them the gift of cash clarity.  Disclose and clearly explain your compensation objectives and priorities.  Detail the purpose and workings of your salary and bonus programs.  Tell them why things are done the way they are.  Share what employees should expect under different scenarios -- this year and going forward.

Fuzziness around compensation provokes mistrust and anxiety - and heaven knows there is already plenty of this to go around.  Give employees the facts and information necessary to understand why they are paid as they are, and what their options and opportunities are to earn more. 

And if your pay program can't stand up to the light of day, perhaps this is a good time to start on a 2013 plan to review and improve it.