Compensation Force

Data on Employer Costs for Total Compensation Elements

A news release issued by the U.S. Department of Labor Bureau of Labor Statistics provides some helpful data on employer costs for total employee compensation, including the average costs for different benefit elements.

A summary of the data-

Average employer costs for total employee compensation was $27.54 per hour worked in December 2006.  Of this hourly figure:

• Wages and salaries averaged $19.24 per hour (69.9% of total compensation costs), while
• Benefits averaged $8.30 per hour (30.1% of total compensation costs)

Within the $8.30 per hour cost of benefits:

• Insurance benefits (life, health & disability) averaged $2.26 per hour (8.2% of total compensation costs)
• Legally required benefits (including Social Security, Medicare, unemployment insurance and workers' compensation) averaged $2.20 per hour (8.0% of total compensation costs)
• Paid leave benefits (vacations, holidays, sick leave, and other leave) averaged $1.94 per hour (7.0% of total compensation costs)
• Retirement and saving benefits averaged $1.21 per hour (4.4% of total compensation costs)

The release contains a great deal of detail by occupational group, industry, bargaining unit status, etc.

New Disclosure of Perks Prompting Disappearing Acts

In the wake of the new SEC disclosure rules which have thrust executive reward practices into the spotlight, a movement away from the use of executive perquisites has emerged in early proxy filings.  In its March 2007 Newsletter, Equilar, Inc. offers an early glimpse of companies whose proxies disclose the elimination of all or some parts of their executive perk packages.

And no wonder.  In a related article CEO Perks See the Light of Day in World Magazine, AP Business Writer Rachel Beck gives special mention to practices deserving of what she dubs The 'Shareholders Paid for What?' Award, including:

• Coca-Cola Enterprises Inc. paid out $50,000 to cover the legal costs that its top executive incurred in negotiating his employment agreement with the company.
• Anheuser-Busch Cos. Inc. Chief Executive got an allowance that paid for beer for personal use and entertaining.
• UST Inc., the holding company for International Wine & Spirits gave its CEO an annual wine allowance.

Beck also suggests a Road Less Traveled Award for Berkshire Hathaway, for its clear-cut explanations of executive pay for CEO Warren Buffett and others.

"Best Place to Work" vs. "Best High-Performance Place to Work"

I just finished reading High Performance Pay by Patricia Zingheim and Jay Schuster.  While the book covers a lot of good ground about connecting pay to performance, what particularly resonated for me was a section in their final chapter about some of the better known "best place to work" designations.  They challenge the notion that the best employers are those which push family-friendly initiatives (while often working diligently in the background to pass health care and retirement costs on to employees). 

The authors say:

The most startling missing element from best places to work initiatives is that they are silent on issues such as creating a workplace where skill and competency growth is meaningfully rewarded.  Probably most important is a lack of recognition for organizations that are successful in really and meaningfully creating a workplace where performance excellence is transparently and consistently rewarded and encouraged.

And,

What comes first -- the performance or the programs?  Indeed, the usual route to trying to become a preferred workplace is to first be a successful enterprise and then or concurrently implement what leadership believes is an employee-positive work environment.  Few poor-performing organizations report that they obtained top performance from employees or attracted people of great value by a turnaround strategy driven by sabbatical leaves for employees.

The intent here is not to build a case against being a best place to work, but rather to ask some questions about what that goal entails, and whether it takes organizations in a direction that ultimately supports employee and employer success.

A client company of mine, whose management team I greatly admire, does not offer sabbaticals or massages or gourmet food on site, but they treat their employees with honesty and integrity and work very hard to tie rewards to performance (and it is a challenge for them, like it is for everyone).  As they are able to make incremental improvements to their compensation and benefits programs - even so simple a thing as adjusting salary ranges upward - they are careful to communicate that it is the hard work and results produced by employees that have enabled these changes and new offerings.  They make it clear that the continued availability of these improvements, and any additional ones made available in the future, are dependent on the ongoing efforts of all staff to help the company meet its mission.

I have to believe that this is the kind of partnership, employees and employer working together and sharing the benefits of their combined success, that Zingheim and Schuster had in mind when they coined the term "best high-performance place to work".      

Reward Lessons from the Fast Food Trenches

Jerry Newman, author of Compensation and My Secret Life on the McJob: Lessons from Behind the Counter Guaranteed to Supersize Any Management Style, conducted his study of rewards in the fast food industry by working undercover for seven fast food establishments in three states during a 14-month period. In a two part article for WorldatWork's workspan magazine, he shares some of the lessons gleaned from this experience, not the least of which is how to reward workers when pay dollars simply aren't available. As Newman puts it: "In a world where 25 cents is a big pay increase, obviously money can't be the central motivator" and fast food managers don't have the luxury of substituting financial incentives for good leadership.  A few of his insights are excerpted below:

Informal Recognition

My best managers all used role models for recognition.  Atith (not his real name) was a Cambodian with halting English.  But he was very meticulous in his mopping.  All new crew members learned about mopping from Atith.  And the manager made great ceremony of announcing how good Atith was, and that we would be learning from the best. A manager at Krystal used the same tool, telling me to watch Marge put burgers on the grill and flip them over.  "She is the best in the store," he said loudly and proudly announced.  It costs nothing and reaps huge jumps in self-esteem to reinforce good work in this way.

Social

There is growing evidence that people who get up in the morning and look forward to work do so because they like the people they work with.  No great surprise, right?  But good leaders don't leave this to chance.  My best managers spent an hour interviewing me.  My worst spent five minutes or less.  In one job I had no interview.  I was hired sight unseen.  What did these good managers spend time on?  They wanted to know what mattered to me and how I approached what did and did not matter.  When I asked my best managers if my interview was typical, universally they said yes.  Find people who fit.  Creat opportunities for fun and growth in friendships.  Social networks are the glue that ties workers to their jobs in a positive way.

Hours of Work

Fast food allocates hours of work as a reward.  Do a better job and you get more hours, if desired.  On a broader scale, some of the best managers I've seen understand that sometimes hours of work need to be flexible.  Even in environments where flexibility isn't the norm, good managers make exceptions for good employees.  Favoritism, you cary.  Yup, say the good managers.  Work hard and you too can become a favorite.

The Most Common Sales Compensation Plan Measures

In late 2006, WorldatWork conducted its second sales compensation survey, featuring the practices of 440 member organizations (the first survey was conducted in late 2004).  One set of findings from the survey is the most common sales compensation plan measures for different sales roles. 

Outlined below are the top five most popular compensation plan measures for four different sales jobs, including primary as well as secondary sales roles.

Primary Sales Jobs

New Account Seller

• Total revenue (33%)
• New revenue (27%)
• Key sales objectives or milestones (19%)
• New accounts (18%)
• Gross profit (17%)

Existing Accounts Seller

• Total revenue (47%)
• Gross profit (24%)
• Key sales objectives or milestones (20%)
• New revenue (18%)
• Select product sales (tied for #5 - 15%)
• Retained accounts (tied for #5 - 15%)

Blended New & Existing Accounts Seller

• Total revenue (54%)
• New revenue (27%)
• Gross profit (26%)
• Key sales objectives or milestones (25%)
• Select product sales (tied for #5 - 17%)
• New accounts (tied for #5 - 17%)

Secondary Sales Jobs   (e.g. inbound sales representatives, technical/sales support representatives)

• Total revenue (31%)
• Gross profit (16%)
• Key sales objectives or milestones (13%)
• Customer satisfaction (10%)
• New revenue (tied for #5 - 7%)
• Price realization (tied for #5 - 7%)
• Units sold (tied for #5 - 7%)

Various recruitment advertising methods include podcasting jobs.

More on Management: What Employees Want

Earlier this week, I featured a post on the important role that management plays in employee engagement and productivity.  As a follow-up, I thought it would also be interesting to look at what employees say they want from their managers.

Lore Institute recently surveyed 500 employees from all types of organizations and industries to learn about just that.  Their findings, as covered in the April issue of WorldatWork's April workspan magazine are highlighted below.

What Employees Want

• 91.5% want honesty and integrity from their manager.
• 89.2% want their manager to be fair and to hold everyone accountable to the same standards.
• 86.7% want to trust - and be trusted by - their manager.
• 84.7% want to respect - and be respected by - their manager.
• 81.2% want to be able to count on their manager.
• 77.4% want to be a part of their manager's team and be asked to contribute ideas and solutions.
• 76.2% want their manager to be a genuine person.
• 74.4% want their manager to appreciate them for who they are and what they do.
• 73.9% want their manager to listen, understand and respond.

What Employees Don't Want

• Only 2.9% want their manager to be a friend or companion.
• Not even 25% want their manager to care for them.
• Only 25.4% want emotional support from their manager.
• Not even 30% want a cheerful or happy manager.
• Less than 30% want their manager to be fun-loving or good-humored.

Do Perks Serve a Business Purpose?

An article, "Perk Place: The Benefits Offered by Google May Be Grand, But They're All Business" in this month's Knowledge@Wharton newsletter discusses Google's highly publicized array of employee perks and benefits.  These include, but are not limited to:

• Free gourmet food
• Fitness center & spa
• Personal trainer
• In-house doctor
• Nutritionist
• Dry cleaning service
• Massage service
• Wi-fi equipped shuttle bus for commuters

Is this generous array of offerings provided purely for altruistic reasons?  Of course not.  The article details the business purpose served by the perks package:

The company wants to achieve several goals:  Attract the best knowledge workers it can from the intensely competitive environment for high achievers; help them work long hours by feeding them gourmet meals on-site and handling other time-consuming personal chores; show that they are valued; and have them remain Googlers, as employees are known, for many years.

Stephen Gross, global leader of rewards consulting at Mercer sees this as the way in which Google is establishing its "employment brand".   Peter Cappelli, management professor and director for the Center for Human Resources at Wharton has a simpler take:  "These benefits help companies recruit people who are willing to spend most all of their time at work."

Want Engaged & Productive Employees? Try Managing Them!

Charles Green of the Trusted Advisor blog has a great post today which examines research that Gallup has done on employee engagement and the correlation between intrinsic motivation and profitable performance.

Gallup research results show the crucial role that supervisors play in worker well-being and engagement, particularly those supervisors who focus on employee strengths and positive characteristics.  In view of these insights, Green points out the fallacy of the often accepted business wisdom that people are primarily motivated by extrinsic rewards.

I have to agree.  Organizational interest in extrinsic rewards, particularly in incentives, seems to be at an all-time high today.  What's behind this?

Part of the answer, I believe, is what Bruce Tulgan (author of It's OK to Be the Boss), whose video appears in a recent post on the Brazen Careerist blog, calls "The Undermanagement Epidemic".  He talks about the trend to "hands-off management", which has taken us to a point where supervisory and management skills are undervalued and underdemanded, where supervisors and managers are treated and appraised more like individual contributors than leaders of people.  And we are racing to fill the performance gap that results from undermanaging with incentives, in the hopes that a well-designed reward plan will free us from the need to provide active and positive supervision to workers.

It all brings us back to a basic truth: there is no substitute for good management.  Extrinsic rewards have their place, and incentives -- I believe -- can play a powerful role, but only as a supporting player to, not in lieu of, strong management.

Has More Become Less? An Initial Look at New Executive Compensation Disclosures

Based on an initial review of a first set of proxies reflecting the new SEC executive compensation disclosure requirements, DolmatConnel & Partners, a compensation consulting firm, has published an analysis (here to download the detailed study) which notes that the new disclosures are lengthier than anticipated, but missing the information critical to a clear understanding of the company's overall executive compensation program.

Findings highlighted by DolmatConnel include:

• The median length of the Compensation Discussion and Analysis (CD&A) was 4,726 words, nearly five times longer than many original estimates.
• Only approximately one-third (36%) of companies chose to include exact financial performance targets (for short-term incentives) in their CD&A. The remaining firms did not disclosure specific targets, presumably because these firms believe such disclosure would cause competitive harm.
• There was a great lack of information and detail disclosed about the method of valuing equity paid upon termination or Change-in-Control, a component of executive pay currently under significant scrutiny, making comparisons between companies impossible. Have the new disclosures met the SEC's intended goals? Are they easier to understand than the old disclosures? Have more disclosure requirements become less helpful and more confusing to investors? The answers are varied and our conclusion is that the new rules have made a very positive step forward in some areas, and a serious step backwards in others.
• The new disclosures contain a much greater degree of detail than historically seen. Information on peer group companies, performance targets, bonus targets, non-qualified deferred compensation, and "other compensation" is available for the first time, and this adds significantly to providing a complete picture of compensation and enhances the ability to analyze the link between executive pay and firm performance.
• The "last-minute" revision to equity valuation rules (disclosing the FAS123R expense in the Summary Compensation Table instead of the previously disclosed initial grant value) obscures how most professionals in the field look at compensation for a given year. It is now aligned with accounting expense, but that is not how investors, executives, Board members and compensation consultants look at executive compensation. While this change was called a "win" for business by the media, our analysis found that this change only resulted in lower reported values 50% of the time (values are actually higher the other 50% of the time).
• The fact that a bonus, as we all know it, is no longer a bonus, but was changed to a non-equity incentive award, buried amongst the long-term incentive data in the Summary Compensation Table, was ill advised. Salary and bonus are always thought of together, and this change creates serious confusion for the average investor.

Leave Donation Programs Gaining in Popularity

Leave donation programs, benefit programs that allow employees to donate unused leave to co-workers in need (such as those needing time to care for an ill child or parent), are growing in popularity, as reported by a recent McClatchy news article. 

The prevalence of the programs was spurred on by Hurricane Katrina, when employees at national organizations sought ways to help their co-workers in areas affected by the hurricane.  Other programs have been around for a long time, including that of Jewelers Mutual Insurance Company in Neenah, Wisconsin, who has had a leave donation program in place for a decade.  Among the major employers with leave donation programs are American Airlines, Marriott Corporation, Kaiser Permanente, UnitedHealth Group, Charles Schwab and the U.S. government. 

Employers tout these programs as great recruitment and retention tools.  Carol Sladek, a principal at Hewitt Associates who was quoted in the McClatchey article, sees these programs as one more way -- and a cost-effective one at that -- to help employees with their work life balance:

Well-designed programs cost employers nothing or save a little money.  That's because donated leave programs usually stipulate that only time is given -- not hourly wages -- and the pay grades of donors tend to be higher than the pay grades of beneficiaries.

The article also provides tips for starting a leave sharing program.

A client of mine, a large health care institution, has had a leave sharing program for some time.  Based on discussions with their employees, I know that the program is seen as a reinforcement of the organization's culture of caring for its workers, and a very positive way to express its mission, which is rooted in Judeo-Christian values.