2013 Status of Employee Compensation: For Better or For Worst

Friday, May 31, 2013

 

Nearly a year ago, WorldatWork, an international nonprofit human resources association for professionals and organizations, released the “WorldatWork 2012-2013 SalaryBudget Survey”, on July 10, 2012.  The Top Level Results projected that US organizations would have, on average, a 3% salary budget.  This compared to a 2.8 to 3% actual salary budget for 2012.  While the 2013 salary is only marginally changed from 2012 and 2011, it is an improvement over the results for 2010 which were in the range of 2.4 to 2.7%.  While an organization’s salary budget is a planning tool, it does not necessarily translate directly into wage and earning increases for employees.  Significant changes in the economy, business operations, governmental regulations, acquisitions & mergers, natural & man-made disasters, and even management changes can impact and organization’s deployment of its salary budget.

 

Since a “salary budget”, like any budget, is only a tool; it is only as good as its design and deployment.  Organizations should have in place a rationale as to how changes in pay are to be administered.  Large employers, who often delegate to line managers discretion in pay matters may be at risk of either over or under spending their salary dollars.  While employees who are underperforming are often, and should be excluded from any increase; overly conservative managers may even under reward their best performers.  By some misguided effort to “save” their employer money, such managers withhold or reduce rewards.  Others, out of a self-serving effort will under reward thinking that getting “more with less” will gain them favor in the eyes of their own managers.

 

A balance must be struck between rewarding performers and maintaining the welfare of the organization and its share holders.  Holding each manager accountable for their individual departmental salary budget is one way.  This places the locus of control with that individual who has the most direct knowledge of the individual’s performance and who is ultimately responsible for production of products and services.  However, managers must be provided with training associated with the organization’s performance evaluation system and its compensation philosophy, if both are to be effective at motivating and retaining top performers.  For non-performers, either they are managed to improve or released from the organization.

 

Even for those employees who are performing at an “acceptable” level, increasingly there is a focus on the very top performers (A & B list).  While this may seem severe, organizations are finding that to complete in an ever expanding global marketplace they must source, recruit, and retain employees who are their key performers.  The consequence to organizations is that they may see increased turnover in the tier of employees just below the top performers (C List).  Thus, an employer must be prepared to deal with additional costs to source, recruit, and retain A & B employees.  However, over time, the organization’s overall performance is expected to rise.  But, isn’t that what we want?

Memorial Day - 2013

IT IS THE SOLDIER

by Charles M. Province

It is the Soldier, not the minister

  Who has given us freedom of religion.

 

It is the Soldier, not the reporter

  Who has given us freedom of the press.

 

It is the Soldier, not the poet

  Who has given us freedom of speech.

 

It is the Soldier, not the campus organizer

  Who has given us freedom to protest.

 

It is the Soldier, not the lawyer

  Who has given us the right to a fair trial.

 

It is the Soldier, not the politician

  Who has given us the right to vote.

 

It is the Soldier who salutes the flag,

  Who serves beneath the flag,

  And whose coffin is draped by the flag,

  Who allows the protester to burn the flag. 

©Copyright 1970, 2005 by Charles M. Province

High Employee Turnover Equals High Costs

Friday, May 24, 2013

 

CareerBuilder, the online job site, reported that as many as one third of U.S. health care workers may be looking to change jobs in 2013.  Based on a survey conducted by Harris Interactive at the request of CareerBuilder, Harris sampled 243 U.S. health care employers plus 508 U.S. health care workers during February and March 2013.  While there is a significant difference between an employee “thinking” about changing jobs and actually carrying through on that thought.  Nevertheless, there may be cause for concern even if the turnover rate is lower than one third.  As health care employers are struggling with lowered reimbursement rates, higher institutional costs, and continued changes in the health care sector; having to deal with elevated employee sourcing and recruiting costs is not a pleasurable thought.

 

In today’s environment of ubiquitous social media, job seekers have unprecedented access to information about an organization’s workforce stability, turnover, and culture.  As much as an out-of-work employee may need and want a job, many talented workers shy away from an employer with a poor workforce reputation.

 

Paul Shread, writing for Time’s Business and Money on March 01, 2013, stated, “Want to hire great employees and keep them happy?  Make sure you have a good social media reputation.”  Shread went on to report that 47% of employees consider an employer’s social media reputation as important as the job offer.  Furthermore, 27% of employers perceive that social media DOES figure into a job seeker’s calculus when evaluating employment offers.  Shread’s comments were adapted from “Companies Struggle to Leverage Social Media” authored by Dennis McCafferty of Baseline Magazine.

 

Sharon Horrigan, an independent writing and editing professional, writing for the Society for Human Resource Management (SHRM), on 5/9/2013 notes that  just as job candidates should police social media sites for their own embarrassing posts, organizations should manage their online public face as well for misleading, false, and incorrect allegations.  Horrigan points out that a 2012 Stanford University and the Conference Board study found that only 32% of “senior executive” track their organization’s social media reputation.

 

Certainly employers have had to deal with bad publicity in print, radio, and television for decades.  However, mainstream media is staffed by professional journalists who generally pride themselves on reporting substantiated facts.  Unfortunately, social media allows any aggrieved customer, employee, vendor or ordinary citizen to voice their grievances, factual or not.

 

So, it begs the question, can any organization ignore its reputation on various social media sites?  Can an employer disregard its online reputation and face the loss of potential job candidates and employees?  Can an organization allow unfounded, misleading or incorrect statements to circulate to potentially hundreds or thousands of future employees not to mention customers?  Is it acceptable to lose even a few top candidates or employees due to the organization’s failure to actively police it public image?

“Big Data”: A Tool for Talent Management?

Friday, May 17, 2013

 

The most modest organization has large amounts of information, i.e., “Big Data”, on its operations, suppliers, customers, and especially on its employees.  Even knowing as little as length of service, hours worked, job function, performance data, and location can be telling as to which employees are likely to succeed or not.  The basis for Big Data decision making is founded in that class that most students ignored or only took the one mandatory course.  That course usually covered the statistical foundation concepts of data collection & presentation, variability, central tendency, sampling theory, inference & hypotheses testing, regression & correlation, indexes & time series, and seasonal & cyclical analysis.  While an employer with a few dozen employees can manage them with no more of a sophisticated tool than a good memory or paper notebook, even a middle sized organization of a workforce of few hundred needs to look deeper.

 

To illustrate the role of Big Data and Talent Management, the Polytechnic Institute of New York University recently hosted a day-long workshop titled: “Talent Management 2.0: HR Innovation In The Big Data Era”.  Speakers at the workshop included NYU-Poly instructors from the computer science, engineering, and technology departments.  Additional speakers included individuals representing PepsiCo, Aon Hewitt, Google, SAS, Morgan Stanley, JetBlue Airways, and Accenture.

 

Aasonn, a global systems and technology services consulting firm, recently reported on a study by the MIT Sloan Management Review: “From Value to Vision: Re imagining the Possible with Data Analytics”.  The MIT study found that while “17% of product development, 19% of marketing, and 20% of operations respondents reported using analytics to drive innovation”, however only 8% of HR organizations used analytics to drive talent acquisition and retention.

 

In what he refers to as “Talent Analytics”, Josh Bersin, a contributor for Forbes, writes, “While most of the talk is about applying BigData to marketing and consumer businesses, there is an even bigger opportunity to apply BigData to Human Resources.”

 

In the same way a marketer might look at customer consumption behavior patterns, the recruiter would look at employee performance and correlate it with various data points.  By asking questions as to who is performing and what they have in common, the recruiter may be able to isolate discrete factors which identify employees as top performers.

 

Is it significant that 90% of employees in department A quit after 18 to 36 months?  Is it significant that 70% of employees who were managed by manager B are now in middle and upper management roles?  Is it significant that all of your best engineers came from small non-top 10 colleges, worked 12-36 months at the Tacoma facility, are currently enrolled in a graduate or MBA program, and have 2 to 4 years of military service?

Summer Interns: Are They Excluded from FLSA's Minimum Wage and Overtime Pay Requirements?

Friday, May 10, 2013

 

Interns are an excellent way to “preview” a potential future employee for many organizations.  Many interns return as full time, highly talented employees after spending a summer with a prospective employer.  The problem is that some organizations use this talent pool without proper regard for the Fair Labor Standards Act (FLSA) minimum wage and overtime guidelines.  Xuedan Wang, a former unpaid intern for Harper’s Bazaar (Hearst Corporation) filed a lawsuit in February 2012 alleging that Harper (Hearst Corporation) failed to recognize her as a regular employee, eligible for protection under the FLSA minimum wage and overtime rules and New York labor law.

 

Previously, the US Department of Labor issued (April 2010) new guidelines for unpaid interns in the form of a DOL “factsheet”.  The fact sheet outlines six (6) criteria for an unpaid intern to be exempt from “an employment relationship … under the FLSA”:

 

“1.The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under close supervision of existing staff;

4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

5. The intern is not necessarily entitled to a job at the conclusion of the internship; and

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.”

 

Apparently, where Harper (Hearst Corporation) may have run into a problem was that the internship program did not meet one or more of these six (6) conditions.  The fact sheet expands on the six (6) guidelines in three (3) illustrative manners:

 

● “In general, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience.”

 

● “If an employer uses interns as substitutes for regular workers or to augment its existing workforce during specific time periods, these interns should be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek.”

 

● “The internship should be of a fixed duration, established prior to the outset of the internship.”

 

Wang alleged “that Hearst used interns … to complete tasks necessary to its operations such as to answer phones, make deliveries, and organize clothing and accessories.”  Furthermore, Wang alleged “that Hearst violated … [both] the FLSA and the New York Labor Law.”

 

Both paid and unpaid interns have potential advantages for employers and employees.  However, clearly professional level assistance should be sought in addressing and dealing with federal, state, and local wage and labor laws.

Individual Health Insurance Mandate Penalty, Too Low to Move Consumers?

Friday, May 03, 2013

 

Beginning January 1, 2014, the Patient Protection and Affordable Care Act (PPACA) will require virtually all Americans to obtain and maintain health care coverage.  Coverage may be provided through their employer, a publicly funded health care program, private insurance via a state or federal government run exchange or a private carrier.  Employers have already begun reporting company provided health care on employees’ 2012 W-2’s issued in January 2013.  Individual taxpayers will begin reporting health care coverage or the lack of coverage when they file their 2014 1IRS 040 in 2015.

 

The concept behind an individual health insurance mandate is straight forward; if everyone has insurance, the risk and therefore the costs are spread across ALL taxpayers and just not those who have employer, private or public coverage.  The US Census Bureau estimated in 2011 that some 49 million persons do not have employer, private or public health insurance coverage and that approximately 260 million Americans had coverage.  The individual health insurance mandate is directed at those without coverage.

 

Since a number of the 49 million persons who do not currently have health insurance will fail to pay for some or all of the cost of their health care needs, the resulting cost is shifted to those who do pay or is written off as a business loss, thus absorbed by taxpayers in general.  In theory, eventually ALL health care consumers, including their employers end up paying higher direct costs or higher insurance premiums, co-insurance payments, co-pays, and deductibles to offset some or all of these unrecoverable unpaid medical expenses.

 

To encourage taxpayers who do not have health insurance coverage, the PPACA assesses a penalty on those who fail to obtain coverage beginning in 2014.  The initial penalty is $95 but increases over time and is indexed to the cost of living after 2016:

 

● 2014, $95 per adult/$47.50 per child, family max of $285 or 1% of income, whichever is greater.

● 2015, $325 per adult/$162.50 per child, max of $975 or 2% of income, whichever is greater.

● 2016, $695 per adult/$347.50 per child, max of $2,085 or 2.5% of family income, whichever is greater.

 

The penalty is capped so that it will not exceed the cost of an individual ($4k -$4.5k) or family ($12k -$12.5k) Bronze plan through the exchanges in 2016.

 

At issue, will the initial and subsequent PPACA penalties actually motivate individuals to obtain coverage?  Loss aversion tells us that consumers fear losing more than they treasury gaining something of value.  So will a health care consumer fear losing the $4,000 to $5,000 for expected annual cost of individual health insurance coverage more than gaining the value of having health care coverage?