Compensation Force

2007 Predictions for Health Care Benefits

Expecting new regulations and an increasing need for cost control to lead to greater employee responsibility for choosing and financing benefits, Watson Wyatt has released the following health care benefit predictions for 2007:

• Increased focus on high-deductible health plans (HDHPs) coupled with a reimbursement arrangement (e.g., health savings accounts).  One-third of large employers surveyed by Watson Wyatt plan to incorporate an HDHP with a reimbursement account in 2007. However, few employers appear to be completely replacing their current plans with an HDHP.
• More benefits information and tools online.  Web-based systems allow employees to model the best choices for them, and many allow plan participants to pick the best provider by reviewing online report cards grading the quality of care.
• Moving beyond mandatory generic prescription drug plans. As more popular prescription drugs come off patent in the next three years and their prices are reduced, employers will loosen their requirements that employees use generic drugs whenever possible. 
• Greater integration between health care and absence management programs. Coordinating such programs will grow in popularity as employers seek to improve employee health and productivity.
• More on-site clinics in the workplace. To ease access to appropriate health care, more and more companies will open on-site clinics.

The Great American Vacation Day Giveback

Americans are likely to give back 574 million vacation days in 2006, worth an estimated $75.72 billion (based on an average hourly wage) according to the sixth annual Vacation Deprivation Survey conducted by Expedia.com. 

Some of the reasons given for this phenomenon include the leaner staffing practices of organizations, making it more difficult for employees to schedule and take time away from their work.  I believe it is also a cultural thing.  As the pool of talent shrinks and the workforce continues to age, this is an issue that employers will need to address.

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Holiday Gifts Vs. Bonuses Debate

I am privileged to have Frank Giancola as a reader and commenter on this blog.  (Frank is a prolific researcher and writer on compensation topics; a few of his articles have been featured here, including Applying Advertising Principles to Compensation & Benefits Communication and Employee Sabbaticals.)

Frank shared a comment on my recent post Holiday Bonuses Continue to Wane, Replaced by Pay-For-Performance, which includes the following:

Hewitt's connection of Christmas gifts, such as a turkey, with performance related pay is bit strained and not suggested by the survey, per se.

The Christmas gift is gesture of good will and can be a token amount.

I think Frank makes a point worth considering and discussing, and I would welcome the thoughts of others as well.  Is a holiday bonus a gift?  A thank you?  A gesture of sharing the results of a good year?  A reward for good performance?  All of the above?

Here are a few of my thoughts on the matter - and I look forward to hearing the wisdom of others.

It is my belief that part of the issue we (as employers) are experiencing with the concept of a holiday bonus - all political correctness issues of the "holidays" aside - is the fuzziness about what the intent and purpose of the bonus is.  This matters when it comes to judging the "success" of the event.  If the intent is to simply provide a token holiday gift to employees, then it only needs to be well received and appreciated to have been successful, in my eyes.  If the intent is to motivate and reinforce performance, then the standards and criteria for success will be different.

In my experience, many employers try to accomplish too many things with the year-end award.  As with any reward, effectiveness is largely about clarity and focus; I have rarely (if ever) seen a multi-faceted, murkily communicated award that accomplishes much. If an employer wants or needs to accomplish multiple things at year-end, perhaps multiple vehicles are needed.  For example, the turkey (or other gift of food) can convey holiday cheer and good wishes, while the annual incentive plan can provide a way to share the rewards of a profitable year. 

Others??? 

Surge in IT Rewards for 2007

According to a recent Mercer Human Resource Consulting survey of 227 large and mid-sized employers, the job group with the biggest reward potential going into 2007 is Information Technology.

Based on the responses of participating employers:

• 69% are offering signing bonuses for these jobs.
• 63% are offering more aggressive pay increases.
• 85% are offering project milestone awards.
• 84% are offering spot cash awards.

Big Bucks for Top Performers in 2007

While overall average salary increases are projected to be modest (approximately 3.7%) in 2007, U.S. companies report plans to deliver significantly higher increases to top performers while holding middle-rated employees to below competitive increase amounts, according to a survey of 227 large and mid-sized employees by Mercer Human Resource Consulting.

According to survey respondents:

• The top 12.8% of workers (performance-wise) will get an average pay increase of 5.4%.
• The next highest 26.2% will get an average raise of 4.4%.
• The middle-rated 52.9% will get an average increase of 3.3% (note nearly half a percent lower than the competitive norm).
• The lowest rated 2.9% will average raises of 1.4%

These figures appear to reflect the acceptance by these organizations that true differentiation (the foundation of any merit pay program) in an era of limited funds means rewarding top performers at the expense of the rest, most notably those who are simply "meeting standards". 

Job Titles Matter "Very Little"

There may have been a time when titles meant something, when there was some consensus around the difference between a Director and a Vice President.  Those days, if they ever existed to begin with, are over.

In her December 17 Washington Post column "President, or Decider-In-Chief", Amy Joyce writes about the proliferation of titles in today's workplace.  She, like many others, believes that the creative title tide turned back in the boom of the late 90's:

The dot-com boom was the start of major title creativity for many workplaces. No longer were there human resource directors. Instead: chief people officers. Steve Jobs called himself chief know-it-all. And workers at Wal-Mart and other stores were no longer employees, but rather associates.

The article also points to the result of a recent Korn Ferry survey of 279 executives where 42% of respondents said that they have seen a rise in the practice of awarding inflated titles to retain top talent.  Face it: titles have a kind of capital of their own.  They can provide a way to reward an employee when the financial means of doing so aren't available.

Most compensation and staffing professionals, as they work to value and fill the jobs, have learned to look at titles with a somewhat jaded eye, focusing instead on job scope, responsibilities and qualifications.  Job titles, according to Brad Patrick, senior vice president of human resources at Sara Lee Food & Beverage, matter "very little".  He says "We really underscore the importance of writing a clear, concise résumé.  The titles? We look beyond those." 

A Perspective on the High Cost of Low Wages

A thought-provoking Harvard Business Review article, The High Cost of Low Wages by Wayne Cascio challenges the assumption that low labor rates (in terms of wages and benefits - or lack thereof) equal low labor costs.  To support his point, he presents a comparison of the practices (and results) of Costco and Walmart's Sam's Club.

Although these businesses are very similar and directly compete with each other, Costco provides significantly higher wages and benefits than Walmart's Sam's Club.  The average wage at Costco is $17.00 an hour while Cascio estimates the average wage rate at Sam's Club to be in the range of $10.00 to $11.52.  82% of Costco's employees have health insurance coverage (for which they pay about 8% of the premium) compared to less than half of Walmart's employees (where those that are covered pay about 33% of the premium).  91% of Costco's employees are covered by a retirement plan (with the company contributing an annual average of $1,330 per employee), while 64% of employees at Sam's Club are covered (with the company contributing an annual average of $747 per employee).

While Costco's labor practices are clearly more expensive, Cascio asserts that they have an "off-setting cost-containment effect".  In return for this labor investment, Costco has significantly lower turnover rates than its competitors, "gets one of the most loyal and productive workforces in all of retailing—and, probably not coincidentally, the lowest shrinkage (employee theft) figures in the industry".

Base Salaries Stagnate at Utilities

Salaries in the utility industry have stayed virtually static according to the annual Compensation Data survey conducted by CompData Surveys.

Learn more about the survey and findings in the utility industry here.

Holiday Bonuses Continue to Wane, Replaced by Pay-For-Performance

The popularity of the holiday bonus continues to decline, according to new information from Hewitt Associates, as companies shift their practices toward variable pay plans.  According to Hewitt, 66% of companies will not award holiday bonuses this year, while 80% are currently offering a variable pay program (performance-based awards that must be re-earned annually).  "Variable pay plans, as opposed to holiday bonuses, clearly connect employees to company performance", says Ken Abosch, a consulting business leader for Hewitt.

Other findings from the Hewitt study, which examined the practices of more than 300 organizations:

• Of the 34% who will offer a holiday bonus program in 2006, awards will take the following forms:
  • 39% cash
  • 37% retailer gift certificates
  • 27% gifts of food (e.g., turkey or ham)
• Over half (52%) have never offered a holiday bonus
• 14% of the organizations studied have discontinued their holiday bonuses initiatives, giving the following reasons (as a % of this group):
  • 61% cost
  • 35% employees did not value
  • 33% entitlement issues
  • 21% the development of pay-for-performance programs

See November 27 post on the topic of holiday bonuses for additional information.

The Limits of Compensation in Improving Employee Performance

Compensation can be a good tool for motivating employees, but it will rarely do so in isolation.  It is important that we keep this in mind.

Managing and improving employee performance requires an array of skills and efforts, including (but not limited to) setting and communicating clear objectives, giving frequent and specific feedback, providing coaching and instruction, and sharing important information.  It is easy to fall into the trap, and I see a lot of my clients go there, of believing that if they can just get the design of an incentive plan "right", if they can get a metric for every desired outcome somehow into the plan design, then performance improvement will just happen. 

A good compensation plan does not excuse us from the task of managing people; at best and when well-executed, it supports and reinforces the good management practices that are actively in place.