Compensation Issues That Keep You Awake at Night (And how to … · 2014. 3. 10. · Dianne...

Looking Ahead

Compensation Issues That Keep You Awake at Night

(And how to get a good night’s sleep)

Washington State CouncilSHRM Washington

March 28, 2014

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

www.mblgroup.comdianne@mblgroup.com

• 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

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

• Time

• Metrics

• Labor Market

• Motivational Goals

• 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”

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

What do the Metrics tell us?

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

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

• 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

y New hire rates > current incumbents

y Subordinate pay > supervisor

ÙTypically occurs when subordinates are eligible for overtime

y Inefficient merit pay programs

y Unionization

y Midpoint differentials (% between midpoints) too close to each other

{ Salary transparency among Millennial Generation

ÙTraditionalists and Baby Boomers have long considered pay a “private” matter

{ Increases in minimum wage January 2014

ÙOregon $8.95 to $9.10 (+1.67%)

ÙWashington $9.19 to $9.32 (+1.4%)

y Review positions to ensure all duties are captures and if reclassification is necessary

y Review market data to ensure positions are “priced” correctly

y Rotate OT amongst non-exempt staff

y Utilize lump sum merit increases, sign-on bonuses, off-cycle merit adjustments

y Variable pay

y Non-monetary rewards

Ù Explore benefits or work-experience options w/o compensation

y Communicate with management and staff

ÙCompensation Philosophy

Ù System Fairness

y Review pay structure and midpoint differentials

y Review merit pay system to ensure significant difference between top and low performers

• Evaluating employee position in range– By tenure– By performance

• Evaluating market target– Relationship of market to range– Desired position based on compensation strategy

• Market analysis of competitive wages– Evaluating all or some of jobs – Determining market movement

• Trend surveys– Published surveys on wage and structure

movement

Market Median Company Midpoint Delta

Administrative Assistant $31,119 $30,000 3.7%

Mechanical Engineer $66,011 $65,000 1.6%

Graphic Designer $43,889 $45,000 -2.5%

Project Manager $70,015 $65,000 7.7%

Overall 2.6%

• Selection of positions for benchmarking• Establish relationship to market• Determine appropriate structure adjustment

2.17%

1.43%

1.50%

1.62%

1.80%

2.00%

1.00%

1.25%

1.50%

1.75%

2.00%

2.25%

Actual 2009 Actual 2010 Actual 2011 Actual 2012 Actual 2013 Forecasted 2014

• Survey Structure Increase Movement

Executives

Range

Spread

50%

40-50%

25-35%

Exempt

Non-Exempt

MidpointMidpoint

Differential

20%-25%+

15%-20%

10%-15%

Min Mid MaxQ2 Q3

1st

Quartile

2nd

Quartile

3rd

Quartile

4th

Quartile

Midpoint is typically market “weighted average” or “median” (50th Percentile)

Min Mid MaxQ2 Q3

1st

Quartile

2nd

Quartile

3rd

Quartile

4th

Quartile

To tackle compression, keep the midpoint spreads substantial

A

B

• 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

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

• Defining the “Performance” in pay-for-performance– 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?

• 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

• Performance Targets (a few examples)– Safety– Quality– Profit– Productivity– Efficiency– Customer Service

– Teamwork– Market share– MBO’s– HR metrics– Mission based– Product Sales

• 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

• 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

• 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

• 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

MBL Group 2013 – 2014 Wage Trends Report

Ù National & Regional Trends

Ù Special Supplement for Oregon & SW Washington

Compensation Philosophy

Base Pay

72%15%6%7%

% Responses

At MarketAbove MarketBelow Market

No Idea!

Total Comp

48%36%1%

15%

Salary Structure

y Actual 2013{ Executive 1.97%{ Management 2.16%{ Exempt 2.32%{ Non-Exempt 2.14%{ Union 0.77%

y 54% reported having a formal salary structure in place

y Projected 2014{ Executive 2.18%{ Management 2.49%{ Exempt 2.66%{ Non-Exempt 2.5%{ Union 0.78%

Types of Base Pay Increases

y 79% budget for Merit Increasesy 21% budget for COLA increases

y 45% budget for promotional increasesy 38% budget for “other types” of increases

Year Executive Exempt Nonexempt

Actual 2000 4.8% 4.5% 4.3%Actual 2001 4.8% 4.4% 4.3%Actual 2005 3.7% 3.5% 3.5%Actual 2007 4.1% 3.8% 3.7%Actual 2008 4.1% 3.9% 3.8%Actual 2009 1.8% 2.1% 2.2%Actual 2010 2.4% 2.4% 2.4%Actual 2013 2.9% 2.9% 2.9%Projected 2014 3.1% 3.1% 3.1%

Year Executive Exempt Nonexempt

Actual 2000 3.2% 3.5% 3.4%Actual 2001 3.3% 3.6% 3.4%Actual 2005 2.5% 2.5% 2.4%Actual 2007 3.1% 3.0% 3.0%Actual 2008 2.9% 2.9% 2.8%Actual 2009 2.1% 2.2% 2.2%Actual 2010 1.4% 1.4% 1.5%Actual 2013 1.9% 1.9% 1.9%Projected 2014 2.1% 2.0% 2.1%

Merit:

Ù Oregon / SW Washington

| 2.9% (with zeros)

| 2.9% (without zeros)

Ù Portland

| 2.9 % (with zeros)

| 2.9 % (without zeros)

Structure:

Ù Oregon / SW Washington

| 2.1% (with zeros)

| 2.3% (without zeros)

Ù Portland

| 2.3% (with zeros)

| 2.4% (without zeros)

y Dianne Burt-Green, CCP, SPHR{MBL Group, LLC

Ù(503) 850-4972 x13Ùdianne@mblgroup.comÙwww.mblgroup.com