Compensation Force

Growing Employee-Employer Disconnect on Compensation?

In its recently released Emerging Workforce Study (the fifth iteration since 1997), Spherion Corporation calls our attention to a significant divide between employees and employers on compensation.  Three quarters (75%) of the employees surveyed cite compensation as the thing most crucial to retaining them, but only 26% are currently satisfied with this aspect of their job.

I think the statistics are revealing of a general and potentially growing disconnect between employees and employers around pay.  I see evidence of this in my own consulting work, especially with organizations that are dominated by younger workers. There may be a host of factors at play behind the trend: from the unlimited availability of comparative pay data (widely ranging in quality and validity) on the Internet to the different attitudes and priorities of Gen X and Y employees in and entering the workforce.  Good or bad news, what it adds up to is an employee population that is more inclined to challenge and/or disbelieve an employer's pay data, practices and policies than in the past. 

We - as HR and reward professionals - need to appreciate and be prepared to respond to this challenge, and I think one of the best tools is transparency.  I'm not talking about necessarily sharing everyone's personal compensation information with everyone else, but rather openly sharing how the pay program is built, where the data used to build it comes from, how it is designed to operate, and what its philosophical underpinnings are meant to be.  And - certainly - I think individual employees should fully understand how the program applies to them (i.e., their salary range, etc.).

Today's (and tomorrow's) employees are not inclined to believe and accept a pay program that is shrouded in mystery.  And while management does reserve the ultimate right to set salaries and salary opportunities, it is best done in an open and well-explained manner.      

Commuter Benefits Programs - A "Green" Perk

An article in today's New York Times discusses the growing popularity of commuter benefits programs, whereby tax incentives created by Congress in the 1990's allow companies to create tax favored incentives to encourage the use of mass transit and car pooling.  Many organizations are including these programs as part of an overall "green" initiative.

According to the Times:

It allows companies to cover up to $110 a month of a worker's commuting costs via bus, subway, train or ferry or lets workers take up to $110 a month in pre-tax money for that purpose.  A similar amount can be contributed to each rider in van pools for six or more passengers.

And:

If employers fund the program, they get a tax deduction for the expense; when the money is set aside from employees' paychecks, employers save money because the amount is not subject to payroll taxes.  In many cases, state and local taxes don't apply either.

Employers looking for more information about commuter benefits programs (also referred to as transit incentive programs or TRIPs) can check out the Web site maintained by the Federal Transit Administration of the Department of Transportation, under the heading Commuter Choice Program.

Perks Keep Executives Plugged In

The most popular perks offered to executives, according to the 2007/2008 Executive Compensation Survey recently released by CompData Surveys, are those that keep them tethered to the office (and who is surprised by this?).  According to the survey of nearly 5,300 employers, 63% offer cell phones to executives as perks, and 44% provide laptops or home PCs.

Other perks offered include:

• Car allowance - 33%
• Company car - 30%
• Supplemental life insurance - 26%
• Voluntary deferred compensation - 20%
• Annual physical exam - 18%
• Supplemental disability program - 17%
• Club membership - 16%
• Supplemental executive retirement plans - 11%
• Supplemental medical insurance - 6%
• Supplemental vacation - 5%
• Legal counseling - 5%
• Airline VIP lounge membership - 3%
• Dependent tuition reimbursement - 3%

Adjusting Your Salary Range Structure: How? How Often?

I get these questions a lot this time of year (although, ideally, it is a question that should have been raised a few months ago).  Salary range structures must be regularly reviewed and updated in order to remain competitive.  I believe that in today's competitive market for talent, it must be done every year.  Allowing your structure to stagnate competitively - these days - will come back to bite you sooner rather than later.

You have a couple of options for accomplishing this:

1. The Quick & Dirty Option (also known as the "Finger to the Wind" Option).  With this option, you collect and consider trend information to get a sense of what has been happening and what is projected to happen in terms of salary increases and salary adjustments.  This information shows up all over the place in the late summer of each year (look here, here, and here for U.S. data and here for International data).  Then simply adjust your ranges by the amount you deem necessary to stay in line with competitive movement.  Note that I recommend relying more on average salary increase figures than structure adjustment figures; more on that in this earlier post.
2. The In-Depth Competitive Assessment Option.  With this option, you select a representative sample of jobs (I recommend at least 1/3 of the jobs covered by the structure) which you believe will be easy to benchmark using available published compensation surveys, go out and collect the competitive salary data, and then use this data to assess the degree to which your ranges should be adjusted (as well as to identify any jobs or job families whose pay is moving at a different clip than the rest of the market and may need to change grade or salary range level).  A comparison of your salary range midpoints/control points against the market medians across the benchmark jobs will accomplish this for you.

I recommend alternating between these options annually (i.e., "Quick & Dirty" the first year, "In-Depth Assessment" the second year, "Quick & Dirty" the third year, etc.) for most organizations.  This seems to provide a good balance between cost efficiency (who has the time and resources to do an assessment every year) and maintaining competitiveness.   Waiting until the third year for your "In-Depth Assessment" may be acceptable, but just know there will be a lot to fix by the time that third year rolls around.

If you don't yet have a plan for determining how to adjust your salary range structure (and assuming your structure operates on a calendar year), time to get moving!

Align Your Salary Ranges With Your Talent Strategy

Some thoughts on getting a little creative with your salary range design.

A "classic" salary range for an exempt professional position looks something like this:

Typically anchored at its Midpoint (or Control Point) to the external market value for an incumbent position, it provides a range of salary opportunity from the Minimum (the lowest possible pay rate for someone in the position) to the Maximum (the highest possible pay rate for someone in the position).  This range, from its Minimum to its Maximum, reflects a 50% increase in width, which is the norm for exempt professional positions (broadbanding strategies aside).

This is the standard, and most organizations with traditional base salary programs have salary ranges close to, if not identical to, this design (they may be a little narrower for nonexempt/support positions and a little wider for senior management/executive positions).  It allows new, developing employees to be hired in (or promoted in) at a rate below the market salary, with the thought that they will be moved closer to the Midpoint (or market) as they gain experience and competence in the role.  It also allows for an above market salary - a premium, if you will - for the pay of experienced employees who perform consistenty at a high level over time.  And, in the face of the constraints put upon it by today's salary increase budgets, it works reasonably well.

But in today's world of heightened focus on talent management, I would submit that it makes sense to consider whether something other than "classic" salary ranges would better fit your organization's talent plan.  Consider the different twists that some employers have made to the classic in order to better align salary ranges with the way they truly staff their positions.

There's the professional services firm whose talent strategy is to hire experienced players with the capability to hit the ground running and little need for on-the-job development.  Trying to hire seasoned people at 80% of the going market rate (which is where the Minimum of a "classic" range sits) is not realistic for them.  They know that their starting offers can't be much (if at all) below market, given the kind of talent they need to attract.  So they created salary ranges that look like the one below, with a shortened bottom end, to mirror their talent strategy.

There's also the asset management firm who places an emphasis on deep client relationships, and who wants to encourage employees to grow within a role long enough to form lasting connections with the people they serve - whether that be as a Relationship Manager or a Wire Transfer Clerk.  These relationships and connections are valuable enough to pay premium levels to long-term employees - even over the 20% premium represented by the Maximum of a "classic" salary range.  So they created salary ranges that looked like the following, with an extended upper end, to reflect their talent management objectives.

Or, as a final example, the technology company whose staffing approach is to bring relatively inexperienced, but promising talent and give them big jobs to grow into.  With this talent management approach, they want to hire low but provide room to grow salaries along with capability.  They created salary ranges with an extended lower end (coupled with an aggressive increase policy for employees in this "developing zone", as shown below.

You get the picture.  Of course, a key element of success with "customized" ranges like the ones illustrated above is thoughtful oversight and maintenance.  Talent management strategies are dynamic things, forced to change periodically either because of conditions in the external labor market or internal priorities and needs - or both.  A "customized" salary range approach that has outlived the talent strategy it was designed to support can produce negative repercussions.   

 

Mothers Let Your Babies Grow Up to Be Computer Science & Engineering Majors

Basic tenets of economics, like supply and demand, account for a lot of the variances we see in the market pay level for different skill sets and disciplines.  A shortage in a particular area, which may exist for a host of different reasons from a particularly rigorous educational requirement to a simple case of not enough people feeling attracted to the field, will cause a spike in the price of that talent.  Often, but not always, that spike in pay will spark interest and the flow of people to the field will increase.  If that happens, the imbalance between demand and supply will lessen and the growth in pay will level off.

At least, that's how it's supposed to work.

But now the National Association of Colleges and Employers (NACE) tells us, in a recent release based on their Fall 2007 Salary Survey, that this basic economic rule is failing to kick in.  Some of the highest demand educational fields, which command the highest starting salaries for graduates, are facing declining enrollment.  Computer science graduates, for example, according to the NACE, are earning average starting salaries of $51,992 and yet the field is seeing a negative growth rate (-0.6%).  The situation is even worse for engineering disciplines, where the average starting salary is $53,710 and the growth rate is -2.2%.

So what fields are attracting more students?  Visual and performing arts tops the list, with an annual growth rate of 2.6%, followed by psychology at 2.3%.  This in spite of starting salaries - $30,174 and $31,857 respectively - significantly below those associated with the aforementioned more technical disciplines.

This could spell trouble ahead, as most organizations will be seeking more - not fewer - employees in technical fields like computers and engineering in the future.  Pay alone, as the NACE points out, may not be the answer - but we may have to prepare ourselves for premium pay levels in a number of these disciplines.  Employers, particularly those in industries which demand a significant supply of technical talent, may also have to work harder to make these jobs and opportunities more appealing - and to become an "employer of choice" for this particular set of people.

In the meantime, never too early to encourage those kids along in their math and science classes.  And for those of us with kids in and/or approaching college, real food for thought and discussion!

Postscript:  Perhaps I am dating myself with the title of this post, which I expected most people would "get".  But my teenage daughter, who occasionally reads this blog, had to ask for an explanation, to which she replied, "WHO is Willie Nelson?"

Back Soon

Dear Readers:  I have not posted on Compensation Force since last week, as I am struggling to deal with an overwhelming load of client work.  I am grateful for the business, but it has forced me to drop everything except basic family maintenance and my 16+ hour work days.  I expect to regain some traction and return to posting no later than this weekend - lots to talk about! 

In the meantime, I appreciate your patience and understanding!