Compensation Force

Today's Cheap Hire ... Tomorrow's Internal Equity Issue?

I've been through the economic slowdown and recovery cycle before, as have many of you.  As such, I find it helpful to consider that history and try to anticipate the challenges that may be waiting around the bend, ready to ambush us as the economy improves. 

One frequent side effect experienced during job market comeback is internal pay equity problems.  As the typical organization recovers and resumes its hiring activity, inequities arise between new hires brought in during the improved economy and current employees, whose pay has been stagnant (or worse) or who may have been hired "on the cheap" during the downturn.  Morale and retention issues ensue and Human Resources is faced with brokering a solution, which invariably involves market pay adjustments along with other tactics. 

Many employers have taken advantage of the recession to "purchase" talent that they might not normally be in a position to afford ... and I appreciate that this represents a smart investment on their part.  But these employers would be well-advised to keep a watchful eye on the market cost of this talent as the economic picture changes lest these investments turn sour on them.  Reactive pay adjustments are invariably bigger than proactive ones, and reactive dollars are rarely as well spent as those delivered with a proactive message and intent.

And so ... forewarned is forearmed: those investments in underpriced talent need to managed carefully as the tides turn in order to truly maximize return.

Time for Rewards to Get (Truly) Strategic: Scenario Planning & Reward Design

Compensation planning - like life in general - just got a lot tougher.  And as we move into what has traditionally been the pay budgeting and planning months, many of us are wrestling with where (the heck) to take our reward plans amidst today's economic uncertainty.

Perhaps we should borrow a technique from the business planner's toolkit?

Click over the my post today at the Compensation Cafe, where I look at scenario planning and its potential application to reward planning and design, supported by a great article on the topic from Knowledge@Wharton.

Image: Creative Commons Photo "It's about rules and strategy" by pshutterbug

Low Performers Take Hit as Economy Forces Salary Increase Discipline

Reduced salary increase budgets are forcing some tough decisions this year, and new research suggests that low performers are taking the brunt of the hit.

The chart below, which features data from Watson Wyatt's newly released Advance Highlights to the 2009/2010 Strategic Rewards Report, shows how performance differentiation in merit increases has been affected by the drop in available salary increase dollars from 2008 to 2009.  While all performers are receiving less this year, note that the increases awarded to employees rated "partially meeting expectations" (i.e. the low performers) have been cut back the most. 

 

To some extent, the small size of the numbers masks what's going on here - so try this for some additional perspective:  

The average increase awarded to a "partially met" performer in 2008 was 46% (nearly half) of that given to a "met expectations" performer that year. 

In 2009, however, the "partially met" performer got 8% of the increase given to the "met expectations" performer, on average. 

That's quite a shift.

Perhaps we are finally getting serious about merit pay.

Pay Increases & Structure Adjustments on Comeback Trail? Watson Wyatt Releases Advance Data

Today Watson Wyatt released advance data from its upcoming 2009/2010 Salary Budget Survey. 

Watson Wyatt's high level findings appear consistent with the data released recently by WorldatWork, which showed 2009 actual salary increases (including companies granting no increases) averaging 2.2% and 2010 projected salary increases (same sample) averaging 2.8%.  While these are indeed, as WorldatWork pointed out in their release, record low increase levels, they are also indicative of a salary increase rebound (of sorts) in 2010.

It is significant to note that 89.9% of the companies (nearly 900) who participated in the Watson Wyatt study project they will grant salary increases in 2010.  The table below summarizes the study's advance findings for salary increases budgets, showing figures inclusive and exclusive of "zeros" (companies granting no increases).

    

The Watson Wyatt study also gives us an advance look at what has been and will be happening with salary structure adjustments, data that has been largely missing from studies available in recent months.  According to study results, 52.5% of participating organizations adjusted or plan to adjust their salary range structures in 2009 and 65.9% plan to adjust them in 2010.  The table below summarizes the study's advance findings for salary structure (midpoint) adjustments, again showing figures inclusive and exclusive of "zeros" (companies not adjusting ranges).

Checking Over That Benefit Package? A Few No to Low Cost Surveys

The question has come to me a few times over the last couple of days ... clients looking for free or inexpensive survey sources that they can use to take a look at their benefits packages.

The good news is ... there are some no to low cost sources out there with good information.  And here they are, in no particular order:

The U.S. Chamber of Commerce publishes an annual employee benefits study.  Based on their website, cost is $75 for members, $125 for nonmembers.

The U.S. Bureau of Labor Statistics (Department of Labor) publishes its own annual employee benefits survey, free of cost and available online.

And if you, or someone at your company, is a SHRM member, you have free access to SHRM's annual employee benefits survey report.

Any other good sources I'm missing - please share up in the comments!

Update: Reader Diane Pfadenhauer, who blogs as Strategic HR Lawyer, shares a link to her favorite health benefits survey published by the Kaiser Family Foundation.  Thanks, Diane!

Pay Communication: Is Our Objective Transparency ... or Clarity?

What exactly should we be shooting for in our pay communication efforts?  Is it transparency ... or is it clarity?

In a post today on his Harvard Business Publishing blog, John Maeda (President of the Rhode Island School of Design) makes the point that these are two very different things, and that we must take care not to confuse them. 

From Maeda's post:

Full transparency is access to all the facts.

But only selective transparency is actually attainable, especially in recessionary times when unpopular decisions need to be made. If you promise full transparency, when you make even one aspect of your business non-transparent — which is often legally and emotionally necessary, especially with personnel matters — people question your credibility.

Often the facts are too complex for those far from the decision to understand. I have found on countless occasions that even with an MBA and years of statistical training as an engineer I scratch my head about some of the numbers I have to manage. Thus to offer a set of raw data to any constituency opens the door to selective interpretation. There is clearly a wide gulf between having access to the facts themselves and having access to an understanding of the facts.

There are solid implications here for those of us involved with reward programs.

If full transparency is access to all the facts, then full transparency is neither appropriate nor is it likely in the cards for your organization's reward program.  This is because the facts which legitimately impact compensation include not only pay program details and not only employee salaries themselves, but also information on each individual's education, certifications, work experience and performance appraisal results and ratings.

Not gonna happen, in all likelihood.  Nor should it.  Nor would full possession of all this information necessarily lead to understanding because, as Maeda points out, the wide gulf that exists between having access to the facts and truly understanding what they mean.

Full clarity, on the other hand, is access to a full understanding of the facts (borrowing Maeda's definition).  This makes more sense to me as an objective:  a full understanding of the facts as they apply to how an employee is paid.  This is achieved through disclosure and explanation of the purpose and mechanics of the pay program and - specifically - how they apply to a particular employee's situation.

Full clarity ... rather than full transparency.  What do you think?

Image: Creative Commons Photo "Industrial Window Study 3" by greeblie

Linking 401(k) Plan to Performance: IBM Takes On The Challenge!

Tying employee benefits to employee performance?  A radical idea ... or maybe not:  IBM is in the process of reinventing their 401(k) plan with just this objective in mind.

Contributor Becky Regan reports on this development today over at the Compensation Cafe:

"Suppose you made a 401K plan that was performance-based?" asked J. Randall MacDonald, senior vice-president for human resources, who was responsible for the pensions' conversion into the current 401K plan.  "If everybody gets paid on performance, shouldn't there be benefits based on performance?  That's what it means to be a performance-based culture."

Details are not forthcoming yet.  But the vision includes a pay-for-performance 401K contribution, coupled with stock options or deferred compensation plans that will serve to differentiate between employees.  Because of discrimination testing, extra benefits would need to be spread across top performers.  Offering a possible solution, retirement consultants recommend comparing workers at similar levels, within the same salary range.

Click over to Becky's post to learn more.

(And if you aren't already, please get subscribed to the Compensation Cafe, a multi-contributor blog where I am joined by five great writers ... and where we have taken a solemn oath to bring you "straight talk, original thinking and caffeinated discussion on everything compensation"!)

The Talent Management Blog Power Rankings (V 4.0) are Out!

Fistful of Talent and the HR Capitalist have released their newest version of the Talent Management Blog Power Rankings, which represent the FOT team's selection of the very best 25 talent, HR and recruiting blogs from an initial set of 130.

Compensation Force is honored to have made it to the top five!

Click over and check out the rankings - where else will you find a list of the very best HR intelligence the blogosphere has to offer - from the top 25 to the many other terrific blogs that also received votes.

Special thanks go out to all members of Team Fistful, who gave up the right to have their own blogs (all great blogs in their own right) considered in order to make the rankings as fair and unbiased as possible.

2009/2010 Salary Increase Budgets at Record Lows: WorldatWork Releases Advance Data

High level findings released today from WorldatWork's Annual Salary Budget Survey, the largest of its kind with 2,600 participating organizations, shows salary increase budgets at the lowest level in the study's 36 year history, with 2009 actual increases averaging 2.2% and 2010 projected increases averaging 2.8%.

Survey findings also indicate that 2009 actual structure adjustments averaged 1.5%, with 2010 projected adjustments averaging 1.8% (I believe these represent the averages out of those who made an adjustment to their structures).

More detailed advance data (the full report is to be published in early August) is available on the WorldatWork website, including total salary increase budgets by employee category, by state and by major metro area.

Advance salary increase budget data is also available for Canada.

WorldatWork plans to resurvey members this summer to stay abreast of shifts or changes in increase budgets.  Also, the Association will be offering a free Webinar on August 25 - available to members and non-members as well - to discuss the survey findings.  More on that to come here.

Update:  Per a clarification provided in the comments by Alison Avalos (WorldatWork Research Manager), please note that all data reported in the high-level findings include zero-percent responses.  Thanks Alison for the additional clarity here!

Free Web-Based CDC Wellness Resource Targets Obesity Prevention

In 2005-2006, 34 percent of U.S. adults and 16 percent of U.S. children and adolescents were obese. In 2000, obesity-related health care costs totaled an estimated $117 billion. Between 1987 and 2001, diseases associated with obesity accounted for 27 percent of the increases in medical costs.

Want to know how much obesity costs your organization?  Want to do something about it?

If the answer is yes, you'll want to check out LEAN Works, a new web-based resource brought to you by the Centers for Disease Control & Prevention (CDC).  LEAN Works brings together a collection of ideas and materials to help you put an obesity prevention and control effort into place for your organization, including:

• An Obesity Cost Calculator that estimates; total costs attributable to high Body Mass Index (BMI), total annual medical costs attributable to high BMI, total annual work loss costs attributable to high BMI, average attributable cost per high BMI employee, and return on investment for obesity interventions.
• Business Case PowerPoint: An example presentation to pitch an obesity prevention program to decision-makers in your company.
• Health Risk Assessment: An example tool to collect baseline employee information related to nutrition and physical activity.
• Health Culture and Environmental Audit: An example tool to assess the physical features of your worksite.
• Employee Interest Survey: An example tool to gauge interest in worksite nutrition and physical activity programs.

If improving or augmenting your employee wellness program is on your list of 2009 objectives, here's a free resource to help you on your way.