Looking Ahead. Compensation Issues That Keep You Awake at Night (And how to get a good night s sleep)

Transcription

1 Looking Ahead Compensation Issues That Keep You Awake at Night (And how to get a good night s sleep) Washington State Council SHRM Washington March 28, 2014

2 Dianne Burt-Green, CCP, SPHR, Principal & Operating Manager

3 Identifying Trouble Spots When your systems need extra attention Managing Compression What is it and how to make it go away! Updating a Base Pay Structure Example of tools to use in making an update When Performance Matters How performance functions within programs 2014 Salary Trending

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5 No program is static Wages increase Employee populations change Recruitment conditions fluctuate Regulatory environment updates Cultural conditions shift

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7 Time Labor Market Metrics Motivational Goals

8 Unchanged compensation plans Number of years, decades, millenniums since compensation system underwent total review HR / Compensation / Total Rewards Staff Resources Staff as fire fighters vs. innovators

9 What do the Metrics tell us? External Internal Ability to Pay - Time to hire - Salary offers - Cost of turnover - Tenure/ Retention - Market Index - Compa-ratio - Compression - Salary distribution by division, dept, mgr, location - Complaints - Communication - Compliance: salary differences by gender, age or minority status - Budget - Benefits as a % of payroll - Variable costs vs. fixed - Awards tied to organization results - Revenue per employee

10 What s YOUR labor market doing? Economy Political environment Availability of talent Variable in job categories; while some jobs have a flood of candidates others jobs have a scarcity of talent Ease of obtaining comparable data

11 Strategic Alignment Values of the organization / values of the workforce Reward Performance? Reward productivity? Clarity and communication Transparency of the system Ease of administration

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13 Salary Compression Salary compression occurs when there is little to no differences in pay, coupled with large differences in responsibilities, skill level or qualifications WorldatWork/Workspan 2009

14 New hire rates > current incumbents Subordinate pay > supervisor Typically occurs when subordinates are eligible for overtime Inefficient merit pay programs Unionization Midpoint differentials (% between midpoints) too close to each other

15 Salary transparency among Millennial Generation Traditionalists and Baby Boomers have long considered pay a private matter Increases in minimum wage January 2014 Oregon $8.95 to $9.10 (+1.67%) Washington $9.19 to $9.32 (+1.4%)

16 Review positions to ensure all duties are captures and if reclassification is necessary Review market data to ensure positions are priced correctly Rotate OT amongst non-exempt staff Utilize lump sum merit increases, sign-on bonuses, off-cycle merit adjustments

17 Variable pay Non-monetary rewards Explore benefits or work-experience options w/o compensation Communicate with management and staff Compensation Philosophy System Fairness

18 Review pay structure and midpoint differentials Review merit pay system to ensure significant difference between top and low performers

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20 Evaluating employee position in range By tenure By performance Evaluating market target Relationship of market to range Desired position based on compensation strategy

21 Market analysis of competitive wages Evaluating all or some of jobs Determining market movement Trend surveys Published surveys on wage and structure movement

22 Selection of positions for benchmarking Establish relationship to market Determine appropriate structure adjustment Market Median Company Midpoint Delta Administrative Assistant $31,119 $30, % Mechanical Engineer $66,011 $65, % Graphic Designer $43,889 $45, % Project Manager $70,015 $65, % Overall 2.6%

23 Survey Structure Increase Movement 2.25% 2.17% 2.00% 2.00% 1.80% 1.75% 1.62% 1.50% 1.50% 1.43% 1.25% 1.00% Actual 2009 Actual 2010 Actual 2011 Actual 2012 Actual 2013 Forecasted 2014

24 Midpoint Differential 20%-25%+ Midpoint Executives Range Spread 50% 15%-20% Exempt 40-50% 10%-15% Non-Exempt 25-35%

25 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile Min Q2 Mid Q3 Max Midpoint is typically market weighted average or median (50 th Percentile)

26 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile A B Min Q2 Mid Q3 Max To tackle compression, keep the midpoint spreads substantial

27 Ability to pay always matters Moving the structure doesn t mean increasing wages, but... Evaluate impact for employees at the current minimums and the new minimum increases Evaluate impact for employees at the current maximums and the potential for salary increases

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29 Pay for Performance Plans Merit Increases Profit Sharing Gain Sharing Commissions Target Incentive Plans Spot Bonuses And more!

30 Defining the Performance in pay-forperformance Organization, division, department, individual Determining how it will be measured Objective metrics What data, where is the data, how is it calculated? Subjective evaluation Who is the evaluator, what is the evaluation tool?

31 Motivation requires Communication Everyone involved in the program needs to understand Why is this program important How does this program work What are the performance targets How are the performance targets evaluated What is the performance time period

32 Performance Targets (a few examples) Safety Teamwork Quality Market share Profit MBO s Productivity HR metrics Efficiency Mission based Customer Service Product Sales

33 Objectivity makes metrics highly desirable Metrics alone may have unintended actions In selecting metrics, think through the data components that are used in calculations and every possible influence on each data piece

34 Customer Satisfaction Measurements: customer satisfaction surveys, feedback at purchase, purchase analysis Compensation components Business unit (store / location) with targets to meet for quarterly bonuses Individual wage increases based on evaluations targeting customer service

35 Measurement = Safety Metric = # of injuries & # of accidents Unintended outcome = supervisors fail to report accidents as the reporting will lower potential bonuses Measurement = Sales Productivity Metric = sales revenue # sales representatives Unintended outcome = large increase in overtime wages with an understaffed sales team

36 Model the measurements and create templates for how the program will run What if? Evaluate financial impacts and outcomes Evaluate the non-financial impacts and outcomes Use modeling to ensure clear agreements (understanding) on how the program will work

37 MBL Group Wage Trends Report National & Regional Trends Special Supplement for Oregon & SW Washington

38 Compensation Philosophy Base Pay 72% 15% 6% 7% % Responses At Market Above Market Below Market No Idea! Total Comp 48% 36% 1% 15%

39 Salary Structure 54% reported having a formal salary structure in place Actual 2013 Executive 1.97% Management 2.16% Exempt 2.32% Non-Exempt 2.14% Union 0.77% Projected 2014 Executive 2.18% Management 2.49% Exempt 2.66% Non-Exempt 2.5% Union 0.78%

40 Types of Base Pay Increases 79% budget for Merit Increases 21% budget for COLA increases 45% budget for promotional increases 38% budget for other types of increases

41 Year Executive Exempt Nonexempt Actual % 4.5% 4.3% Actual % 4.4% 4.3% Actual % 3.5% 3.5% Actual % 3.8% 3.7% Actual % 3.9% 3.8% Actual % 2.1% 2.2% Actual % 2.4% 2.4% Actual % 2.9% 2.9% Projected % 3.1% 3.1%

42 Year Executive Exempt Nonexempt Actual % 3.5% 3.4% Actual % 3.6% 3.4% Actual % 2.5% 2.4% Actual % 3.0% 3.0% Actual % 2.9% 2.8% Actual % 2.2% 2.2% Actual % 1.4% 1.5% Actual % 1.9% 1.9% Projected % 2.0% 2.1%

43 Merit: Oregon / SW Washington 2.9% (with zeros) 2.9% (without zeros) Portland 2.9 % (with zeros) 2.9 % (without zeros) Structure: Oregon / SW Washington 2.1% (with zeros) 2.3% (without zeros) Portland 2.3% (with zeros) 2.4% (without zeros)

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45 Dianne Burt-Green, CCP, SPHR MBL Group, LLC (503) x13