Compensation Force

Smaller Businesses: More Jobs & Higher Pay?

An interesting combination of data has crossed my computer screen in recent days...

First this.  Based on its recently released quarterly Business Confidence Survey, Administaff reports that most small businesses are meeting or exceeding their growth projections, nearly half are in the process of adding full-time staff, and comparisons to last year indicate that average compensation is up 5.8%.

Specifically:

• 54% of surveyed companies say they are meeting their 2008 business projections and another 21% state that they are exceeding those projections.
• 43% of surveyed companies say they are hiring additional full-time employees and 13% are adding part-time staff.
• A comparison of compensation data (from a base of more than 6,100 small and medium-sized businesses) with the same period in 2007 shows that average compensation is up 5.8% and average commission rates have increased 3.9%.

And then, from its recently published Salary Budget Survey, WorldatWork also reveals some interesting statistics on average actual 2008 and projected 2009 salary budget increases, by organization size:

• Organizations with 1-499 employees
  • Average actual 2008 increase:  4.3%
  • Average projected 2009 increase: 4.3%
• Organizations with 500-2,499 employees
  • Average actual 2008 increase:  3.9%
  • Average projected 2009 increase:  3.9%
• Organizations with 2,500-9,999 employees
  • Average actual 2008 increase:  3.9%
  • Average projected 2009 increase:  3.8%
• Organizations with 10,000-19,999 employees
  • Average actual 2008 increase:  3.8%
  • Average projected 2009 increase: 3.8%
• Organizations with 20,000+ employees
  • Average actual 2008 increase:  3.7%
  • Average projected 2009 increase:  3.6%

Evidence that smaller businesses are adding jobs and increasing salaries at a higher rate than their larger counterparts.  As a small business owner myself, as the spouse of a small business owner, and as someone who has occasion to work with a number of small and mid-sized businesses, I find the information heartening. 

Hooray for entrepreneurialism!

Incentive Award Benchmarks

As part of the top level data released from its 2008/09 Salary Budget Survey, WorldatWork has provided us with some helpful benchmarks on average incentive (variable) pay awards, by employee group, covering budgeted as well as actual paid levels, over the past few years.

The award benchmarks (expressed as a percent of base salary), are presented in the table below.

Can Your Employees Make a Difference? What Does Your Incentive Plan Say?

I am floored by how many times, during the design of an employee incentive plan, management trots out the assumption (as though it were an indisputable truth) that individual employees are unable to make a meaningful contribution to overall organization - or business unit - performance measures.  That there can be no possible line of sight between the work of rank and file employees and overall organizational metrics like revenues or net income.  And so, it logically follows, the only way to implement incentives for most of an organization's population is to focus on individual performance measures, perhaps with a token (and low-weighted) nod to something at the organizational level.

When I push back on this tendency, I often get a response along the lines of: "Well, these people can't make a difference in the organization's bottom line."

Really?  Then why are they there?

An incentive plan provides a terrific opportunity to focus employees - all of them - on doing the things in their respective jobs that help the organization successfully execute its most important objectives.  The management teams who have made this connection happen are those who are committed to ongoing conversations between each employee and his/her direct manager about what must happen, each day, for that employee to help impact the most important measures of organizational success.

Right down to the plant floor.   Like talking to assemblers about how they contribute to net income by reducing scrap.  Or talking to warehouse workers about how they contribute to overall productivity by reducing errors in the order picking process.  And so on.

Not long ago I was helping a mid-sized company design a new annual incentive plan for the top 6 or 7 executives reporting directly to the CEO.  The officer leading the effort suggested that we tie 50% of each executive's award to their individual performance goals, because "they can't, individually, really have much of an impact on overall company performance."

I'm sorry, but what?  The top executives in the company can't impact overall company performance?

The issue here is obviously deeper and wider than incentive plan design, but the plan design process has a tendency to bring it forward and lay it into our laps.  How can an organization hope to achieve its overall goals when it is enveloped in the sense that nobody working there can really make a difference?

Talk about your self-fulfilling prophecy.  What do you think?

Carnival of Trust Coming to Compensation Force: Call for Submissions!

Compensation Force will proudly  host the September Carnival of Trust, going up on Tuesday, September 2.

The Carnival of Trust, the brainchild of Charles Green of the Trust Matters blog, was set up for the purpose of establishing a home base, a center of gravity, for people who are interested in fostering greater trusted relationships in various realms of the world.

The Carnival of Trust is a selection of the Top Ten (a hard limit) blog posts across several categories:

• Trust in Sales and Marketing
• Trust in Advising and Influencing
• Trust in Leadership and Management
• Trust in Strategy, Economics and Politics

For more information, check out the July Carnival, hosted by Andrea Howe of Bossa Nova Consulting.

Deadline for submissions is this Thursday, August 28 at midnight.  Please forward all submissions here.

Special call out to my fellow bloggers in the HR/talent arena: This is a great opportunity to expose a recent post of yours which addresses the topic of trust to a broader audience than might usually find you - don't let it pass you by!

2009 Salary Planning Rundown

It's that salary budgeting time of the year!

As a service to readers, I thought I'd share a high level rundown of a few of the biggest U.S. salary budgeting/planning surveys out there, and what they are telling us about 2008 actual and 2009 projected salary increases.

Drumroll, please ...

• WorldatWork 2008/09 Salary Budget Survey
  • Over 2,700 participating employers, covering over 13.6 million employees
  • Actual average 2008 salary increase: 3.9%
  • Projected average 2009 salary increase: 3.9%
• Mercer 2008/09 U.S. Compensation Planning Survey
  • Over 1,000 participating employers, covering over 12 million employees
  • Actual average 2008 salary increase: 3.8%
  • Projected average 2009 salary increase: 3.7%
• Business & Legal Reports (BLR) 2009 Pay Budget Survey
  • Over 1,100 participating employers
  • Actual average 2008 salary increase: 3.67%
  • Projected average 2009 salary increase: 3.71%
• Watson Wyatt Global Strategic Rewards Survey (yet to be released)
  • 276 participating U.S. employers
  • Actual average 2008 salary increase: 3.5%
  • Projected average 2009 salary increase: 3.5%
• 2009 Economic Research Institute (ERI) Salary Increase Survey
  • Actual average 2008 salary increase: 4.1%
  • Projected average 2009 salary increase: 4.0%
• CompData Surveys 2008 Compensation Survey
  • Actual average 2008 salary increase: 3.60%
  • Projected average 2009 salary increase: 3.62%

As you can see, the detailed numbers vary a bit (from 3.5% to 4%, with the largest surveys in the 3.7% to 3.9% territory), but the message seems to be consistent, that salary increase levels are expected to stay relatively flat from 2008 through 2009.

Postscript: For a later fall update on salary planning research in light of the continuing economic crisis, please go to my October 24 post A Look at Salary Increase Budgets in the Wake of the Economic Crisis.

The Talent Management Blog Power Rankings are Out!!

From the crew at Fistful of Talent comes the very first installment of the Talent Management Blog Power Rankings, presenting us with their take on the best in talent, HR and recruiting related blogs.

Be sure to check out their Top 25 (and please note Compensation Force at #4 - yay!) and an Oscar worth acceptance speech by first place winner Jim Stroud of The Recruiter's Lounge!

Go Team FOT! Thanks for taking the time and effort to recognize the people who devote their time and effort to provide lively and engaging platforms for discussion of all things Talent.

Scorecard Based Incentives: Better Balanced ... or Unbalanced?

In the wake of the success and popularity of the Balanced Scorecard, a performance planning and measurement framework brought to prominence by Robert Kaplan's and David Norton's landmark book by the same title, many organizations have taken the step of tying incentives to their own scorecards.

The broad acceptance and use of balanced scorecards owes much to their "holistic" approach to measuring business performance, which considers financial as well as a number of non-financial metrics, lead as well as lag indicators of success.  But is this balanced set of measures well-suited to employee incentive plan design? 

The answer?  It depends.  (Admit it, you saw that one coming...)

It's true, though.  It depends on what you truly want that incentive plan to do for you, in the scheme of your overall reward strategy (or even your total talent management strategy).

If you are looking to raise awareness and draw attention to the company's overall strategy and the multi-faceted nature of successfully executing that strategy, then a plan where award opportunity is extended across all scorecard measures will likely do that for you.  Coupled with strong communication and perhaps a recognition program that reinforces specific accomplishments in different scorecard areas, this kind of balanced incentive plan could be a solid choice for an all-employee plan, keeping the scorecard top of mind throughout the year. 

Alternatively, if you want the plan to drive significant performance improvements, your incentive award dollars will ultimately deliver greater returns if they are concentrated on just a couple of the most critical scorecard metrics.  Incentives are at their most powerful when they focus people's attention.  In this sense, and if this is your intent, an unbalanced plan that ties awards to just a few measures is likely the better fit.

So, when it comes to scorecard based incentives, as a general rule:

Balanced = dilution, best for raising awareness

Unbalanced = focus, best for driving performance improvement

Neither approach is right or wrong, to my mind.  It gets back to the question of what are you trying to accomplish with your incentive plan, and what role it is to play within your total reward strategy.

I'd love to hear from those of you with scorecard based incentive plans in place.  Would you agree with my assertions here?  What has your experience been? 

Cash for Medals: Should the Olympics Pay for Performance?

There are plenty of cash carrots (and at least one stick) being offered to athletes who win medals at the Beijing Olympics.  Julien Dionne has a thought-provoking post up, addressing pay for performance Olympic style, today at his LeapComp blog. 

A number of countries, including the United States and - for the first time - Canada, pay sizeable cash incentive to athletes who bring home Olympic medals. 

Julien shares a representative list of cash-for-medals practices, and poses some great questions, including:

Are these incentives necessary?

Do they really motivate athletes to perform better?

Could the countries seeking to improve their Olympic performance spend this money in other, more effective ways?

What do you think?

Adjusting Your Salary Structure: The Two Step Dance

In the wake of my recent post on why salary ranges are a good thing, I thought it might be advisable to follow on with some thoughts on the general care and maintenance of a salary range structure, once you have one (or more) in place.

The advice I give my clients is to follow a two step regime, typically alternating steps every other year.  This approach strikes a solid balance - I think - between competitive precision and the efficient use of available resources. 

• In Year 1, you go through a market benchmarking process, matching your jobs to salary surveys and compiling competitive salary data.  You do this either for every job in your salary structure, or for a heavy representative sample.  (If you are doing a sample, be certain that your selection of jobs covers all grade levels, all major functional areas and the positions with the biggest incumbent count.)  By comparing the results (estimated market value for each job) to your current salary range midpoints (or other control points), you accomplish the following things:
  • You obtain a very precise sense of your range structure's overall level of competitiveness and the kind of general adjustment that is necessary to maintain your desired market position.
  • You identify any jobs - or job families - where market values have moved at a different pace (more quickly, more slowly) than the overall norm.  These might call for more targeted action, as in adjusting grade assignments.
• In Year 2, you forego the detailed market benchmarking, instead taking stock of general market trends (including, but not limited to, actual and projected salary budget increases in your industry and geographic region) and using that general information to determine whether and by how much to adjust your salary structure.  Remember to adjust your structure based on actual and projected pay movement, not increases in the cost of living.

A number of my clients have made this a three year cycle, where they do the detailed benchmarking in Year 1, but then go through Years 2 and 3 making decisions based on general trend information.  This is acceptable (and is often,frankly, a resource-based decision), but I find that the extension often comes at some cost.  For those who follow a three step dance and only benchmark every third year, we usually find that there is a lot of fixing which needs to be done.  Those who benchmark every second year tend to be able to nip most problems in the bud.

What about you?  Are you a two-stepper or a three-stepper?  What salary structure adjustment steps and process have you found to work best?

Salary Ranges - Why Should We?

Are established salary ranges necessary?  Are they desirable?  Reader Britney asks about the pros and cons of setting salary ranges. 

Formal salary ranges aren't mandatory, of course.  There is no law requiring that you put them in place.  But they do serve a useful purpose, which is why so many organizations have them.  A 2007 poll conducted by WorldatWork found that more than 86% of responding members had a formal salary structure of some type (either a more traditional structure, broad bands or some combination).  As a general rule, the larger the organization, the more likely it is to have implemented some type of formal salary structure.

If well-designed, your salary ranges should serve as the living embodiment of your compensation philosophy - and your larger talent strategy - by guiding all salary decisions accordingly.  Having salary ranges in place can ensure that salary decisions, from new hires to promotions, are made in light of an objective and consistent set of rules.  They provide at least a first line of defense against salary discrimination, intentional or otherwise, by ensuring that employees performing the same job are granted the same salary opportunity.

Last, but certainly not least, formal salary ranges provide you with a tool for proactively managing your salary dollars.  For many organizations, employee pay is one of the largest costs of doing business.  Having a formal structure against which to track your practices is the best way to ensure that you are spending as you intend to.  It's an ROI thing; something your CFO understands and you had better, too.

These are all "pros", of course.  The "cons"?  Well, like any other form of control, salary ranges will limit the flexibility your managers have around salary decisions.  And there is a time and resource commitment involved in setting up and managing salary ranges on an ongoing basis. 

For most organizations (with the exception of the very smallest), I think the "pros" of formal salary ranges outweight the "cons" - but I have an undeniable bias.  What do you think?

Creative Commons Photo: "Dollar" by Daquella Manera