Wage Stagnation: Renewed Focus on Benefits

Tuesday, December 31, 2013

In the constant struggle to retain an organization’s talent, employers must use all of the resources at their disposal.  This is especially true during this extended period of wage stagnation most employers are experiencing.  It is easy for a top performer to be enticed away by a competitor with a 25% or 50% of an increase.  Even a well educated employee can fail to consider the true financial impact of jumping ship, particularly if it involves relocation of family members.  A number of years ago I worked for an organization where my primary role was oversight of retirement plans.  I was approached by a senior organizational member for help in understanding an offer from a competitor.  I was able to help him appreciate the loss of future retirement benefits if he were to accept the offer at this point in his career.  Ultimately, he decided to stay.

In the December 18^th release of the “2013 State of Employee Benefits in the Workplace Series”, the Society for Human Resource Management (SHRM) concluded that that “the use of benefits as retention tool in not widespread among HR professionals”.  SHRM’s study reported that between 2012 and 2013, the percentage of organizations using benefits to retain talent had fallen 2 percentage points from 20% to 18%.  For those employers who do attempt to use employee benefits to retain talent; health care, retirement, and flexible work benefits were the top 3.  However, the sobering fact is this accounted for only 60 out of 335 survey participants.

Considering the cost of employer provided benefits average 30% of an employee’s total compensation, how is it that organizations are not using benefits to dissuade top performers from walking?  As reported in SHRM’s May 2013 “Workplace Visions, 2, 2013”, the top issue for CEO’s in 2013 was “Human Capital”, per the Conference Board’s, 2013, “CEO Challenge 2013 Summary Report”.  Again, why are over 80% of employers failing to leverage every possible tool to retain their talent?

Human Resource functions are often lightly staffed and one of the first organizational units to be reduced, outsourced or eliminated during down times.  Since 2007, most HR functions have been impacted, yet at the same time organizations expect HR to provide the same or even expanded levels of support.  HR staffs may not have the tools to help employees understand the value of their benefits relative to a competitor’s.  Often by the time HR learns of a top performer leaving, it is too late, the employee has already terminated.  Employers with multi locations often have no local HR support and many regional and site managers do not have the time, knowledge, skill or tools to leverage their organization’s benefits retention power.

With 30% of the cost of production tied up in employee benefits, it is a missed opportunity not to leverage benefits as a retention tool.

Non-Profit Organizations Facing Brain Drain

Friday, December 27, 2013

 

Non-profit organizations (NPO’s), including religious, educational, philanthropic, health care, labor unions, and professional associations are facing a critical talent drain as Baby Boomers retire over the next five years.  A recent study [highlights] by the Plan Sponsor Council of America and sponsored by the Principal Financial Group reports that almost 70% of NPO’s will be forced to replace most retirees and over a third will report difficulties finding replacements.  Over 50% of NPO’s project they will lose 10% to 20% of their workforce to retirement.  While the study focused on 403(b) plan design, eligibility, participation, and administration, the study points to a serious pending loss of talent.  The survey is available for purchase at:  2013 403(b) Plan Survey.

 

Faced with such a significant loss of talent, NPO’s will have to go head-to-head with for-profit organizations to acquire the required talent to meet their missions.  While there has always been a tug-of-war between private for-profit and non-profit organizations, however with both sectors feeling the burn of Baby Boomers’ forthcoming retirements, talent acquisition and retention will take on an increased sense of urgency.  Candidates with advanced degrees in the sciences have typically leaned towards schools of higher learning for teaching and research opportunities, those same skills are increasingly sought by the private sector.  Organizations such as Bain& Company actively seek masters and PHD level applicants for consulting and internship positions, the same candidates often sought out at many NPO’s.

 

Organizations cannot compete for talent solely on the merits of their benefits and retirement plans.  Even the most altruistic candidate can be swayed by cash and non-cash opportunities, as well as work culture.  Both for-profit and non-profit employers will be faced with the challenge to present applicants with a total package.  This challenge will demand a new level of flexibility in the design and administration of the employer-employee relationship.  Organizations will be faced with situations which necessitate the retention of their current talent while acquiring their replacements.  Phased retirement could be one tool smooth the transition from an employee with decades of service to their replacement.  Many of us entered the workplace in a “phased” manner, working part-time, summer jobs, internships, and finally full-time employment.

 

While the loss of organizational talent is not a pleasant prospect, it does bring with it the opportunity to re-design and re-invent how work is done for many employers, including NPO’s.  Concepts such as Creative Destruction can be applied to job level tasks in an effort to bring about workplace change from “we have always done it that way”.  A self-managed and cross-functional team culture could appeal to the mind-set of many Generation X and Y cohorts as potential Baby Boomer replacements.  Finally, leveraging of technology for non-profits is just as vital as it is for their for-profit counterparts if they are to focus on their mission.

The Best Workers Are the Least Engaged

Friday, December 20, 2013

 

Is this possible, some organizations’ best workers are those who are the least engaged?  Susan Adams, a staff writer at Forbes, reported a 2013 study, “Job Performance Not a Predictor of Employee Engagement”, authored by Mark Murphy, CEO of Leadership IQ which found that job performance is not a predictor of an employee's engagement level.  Thus, it would appear, low performers could be more engaged than high performers.  If true, the findings reported in the study brings into question many of the commonly held beliefs of a large number of employers.  A PDF of the full report is available at: Study  

 

“Low Performers Are the Most Motivated To Give 100% Effort at Work.”

Why aren’t top performers giving 100%?  They are not being challenged or motivated to perform up to their full potential.  Murphy’s recommendation is to have one-on-one time with those high performers to provide a few gentle “Shoves and Tugs” to direct them towards opportunities for them to shine and thus feel recognized.
 

"Low Performers Are More Likely To Recommend Their Organization As A “Great Place To Work.”

This directly impacts the applicants, customers, and vendors with which an organization has to deal.  The concern Murphy has with this is simple, if an employer’s top talent does not perceive the organization as a great place to work, they are going to be job hunting and soon.

 

"When Low Performers Are Not Held Accountable For Poor Performance It Negatively Impacts High and Middle Performers."

It always seems there are a few workers who just do not carry their load, yet they are rewarded as if they did.  So while low performers are delivering 50% or 75%, an organization’s top performers are knocking down 125% or 200% just to keep the project on its timeline and under budget.  Leadership IQ’s advice, hold every employee accountable for their work.  This would be a good use of some “Shoves and Tugs” for those low performers to “shape up or ship out.”

 

"High Performer Efforts Go Largely Unrecognized While Low Performers Receive Positive Reinforcement."

An organization’s top performers are self-starters, self-mangers, and deliver results.  Low performers need a constant stream of directions and follow-up by managers, who have little time left over for top performers.  Murphy believes that organizations must identify those attitudes, in addition to skills, which create successful employees for their businesses.

 

"High Performers Feel Helpless About the Trajectory of Their Careers."

High performers want to be in charge of their lives and especially their careers.  Leadership IQ relates this to linking the organization’s vision, the acquisition of attitudes and skills, and top performers finding a role to help the employer achieve that vision.

 

"Low Performers Don’t Know They Are Low Performers."

It is a very unpleasant and uncomfortable situation to sit down, face to face with any employee and say they are not performing.  The impact on the high performer is de-motivating since they perceive the low performer is not being held accountable.  So, they start job hunting.  Murphy thinks this not a lack of skills, rather the wrong attitudes.  Change the attitudes, and you will change the performance.

Internal Pay Compression Important

Friday, December 13, 2013

 

According to WorldatWork, the human resources association for professionals and organizations, market pricing jobs remains the most frequently used method for job evaluation in organizations today.  Compared to other methods of evaluating jobs, market pricing is relatively simple and inexpensive.  However, after years of salary freezes, minimal salary increases, and job consolidations, should organizations be concerned about the impact of pay compression within job classifications?

 

Internal pay compression occurs when cohorts within the same job classification are paid very similar rates but have very dissimilar skill and/or experience levels.  Rates are compressed as new hires, with little or no experience, enter the classification while existing incumbents, with significant experience, have had their rates frozen or have received only minimal increases over time.  Compression may also occur when an individual contributor approaches the pay level of their immediate manager.  A significant and contributory factor in recent years has been the suspension or radical reduction of annual pay increases by many organizations for large numbers of employees.  This stagnation of wages has resulted in a flattening of pay variation within most salary ranges and thus increased the likelihood of compression.

 

Pay compression becomes an issue for an organization’s talent acquisition and management efforts when top performing employees perceive their efforts will go unrewarded and new hires enter the organization at or near the top performer’s pay level.  While it is easy for an employer to pronounce that workers should not have “expectations” of automatic pay increases, employees do have expectations their individual efforts beyond the standard will be rewarded.  Compression has the ability to have a significant impact on employee morale and productivity, even in down economic times.  By failing to reward their best employees, organizations risk the possibility of increased turnover among their top talent.

 

The solution for pay compression appears to be very simple, raise employees’ pay.  Unfortunately, all that may do is to perpetuate the issue for the same group of employees or generate compression issues for a whole new group of workers.  Organizational redesign might also sound like a solution.  However, creating advancement opportunities where there are no valid organizational needs also creates its own unique set of future problems.

 

Jim Kochanski and Yelena Stiles, at Sibson Consulting, a The Segal Group, writing for SHRM, the Society for Human Resource Management recommend several long term solutions to pay compression in their July 19, 2013 article, “Put a Lid onSalary Compression Before It Boils Over”.

• Look for high-potential external candidates ... ready to move up into the job and will see it as a promotion.

• Control pay both from an HR policy standpoint and from a budgetary standpoint.

• Limit how high within a range new hires can be paid.

• Require a review of equity adjustments for incumbents if new hires are brought in at higher salaries.

• Institute transparency across units, either before or even after compensation actions are taken.

• Institute calibration across units.

Where has all the Talent Making Gone?

Friday, December 06, 2013

Talent making is a lot like cooking, you get out what you put in.  Use the wrong cook or sub-standard ingredients and you’ll get a sub-standard product.  Talent making, just like cooking, depends on understanding how the various ingredients work together to produce great talent.  Cooked too slowly and talent is under prepared, cooked too fast and talent is burned out, cooked in the wrong appliance and the final product is undesirable. 

In today’s “just-in-time” everything, organizations often expect talent acquisition and development to be the same.  With organizational demands which often require employers to turn-on-a-dime at a moment’s notice, it is understandable that mangers expect somewhere out there in the talent-sphere, there is a supply of potential employee’s with just the right mix of knowledge, skills, and abilities to match their needs.  However, as the economy continues its slow and protracted recovery, fewer and fewer desirable individuals are waiting in the wings.  Increasingly, employers are faced with the dilemma to buy or build their talent.  In either case, the raw materials must be identified within the organization or acquired externally.

On the one hand, there are hundreds of “staffing agencies” who have stables full of talent.  In the world of a la carte staffing organizations, employers can staff virtually any position required on a “temp” basis.  Why should any organization attempt to source, screen, recruit, onboard, and manage a cadre of workers when in 6 days or 6 months workers with a different set of skills may be needed?  Hobbled with all of the current and future rules and regulations surrounding employment, compensation, and benefits, would it not make economic sense to let some staffing agency deal with those issues?  And, there is an upside for “temp” workers”, many do get placed with employers.  So employers get to “test drive” an employee and the worker gets to try on the job for a “goodness of fit”.

On the other hand, the very fabric of an organization is found in its employees.  Often the brand itself is linked closely to the services provided by those same employees to the organization’s customers.  As good as many temp workers are they have little vested interest in an organization which sees no value in their long term tenure.  While there are exceptions, long term employees see a connection between the success of their organization and their own success.  As much as it can be in today’s business world, employers and employees are symbiotically bonded to one another.  That bonding is best explained by “social exchange theory”.

Regardless, whether an organization buys or builds its talent, talent is essential to the long term success of any employer.  From the CEO down to the loading dock, employers are always seeking the best talent they can find and afford.  Cheap talent is like the throw-away paint brush from the corner home improvement store, it is good for one job, and sometimes not even for that.

Compensation Plans in the Future

Friday, November 29, 2013

 

At one time the standard model  for many compensation plans was to annually price jobs based on internal job evaluations and market data comparison to external competitors with similar organizations, benchmark jobs, labor forces, revenue streams, even down to regional variations.  Organizations often employed a merit matrix, designed to allocate specific salary percentage increases based on a combination of comp-ratio and performance levels.  It was not unusual for most employees to come to expect an increase simply because they had clocked one more year of service with the organization.  “Just doing one’s job” qualified many employees for an annual increase, although it was the same level of performance as the prior year.  While many employers reported they had a “performance based pay” system, many of those systems were performance based in name only and were neither robust nor valid.

 

But “the times they are a-changin’”, organizations have begun to re-think who, when, how, and. why employees are rewarded.  A trend that has been emerging for some time now is that employers must reward and recognize the continuous creation of “value” by their workers.  Current compensation design has already built into “base” pay, remuneration for an average level, i.e., “meets” level of performance.  Only those employees who can demonstrate creation of value for the organization should be rewarded.

 

But exactly what is “value creation”?  Value creation is whatever makes an organization more competitive, effective, efficient, and compliant either to its internal or external customers.  Value creation includes, designing new profitable and competitive products and processes, eliminating and reducing cost, waste, errors or re-work, developing new profitable markets, and customers, avoiding or limiting litigation, regulatory penalties, … etc.  How does an employee create value for an employer?  It starts with engaging and empowering workers to think like owners and entrepreneurs.  Even small changes in a process can yield significant results.  Often this change requires “creative destruction” of the existing process or product, which can make many organizational leaders uncomfortable.

 

Compensation plans in the future must reward an organization’s talent who recognize opportunities and convert those opportunities into desirable outcomes for their employers, thus adding value.  Merely continuing to “do one’s job”, will only delivery last-year’s results, which in today’s hyper-competitive world is no longer acceptable.  Organizational managers who inhibit innovation, change, and value creation must be re-educated to become coaches, mentors, and enablers of talent.  Future compensation systems must reward those managers who routinely produce a flow of talented employees for the organization.  While many managers consider themselves to be a control point, reward and recognition methods must reinforce their talent development and growth-enabling characteristics.

 

Finally, future compensation systems must be designed in a way which meets the organization’s needs today yet be flexible and robust enough to continue meeting its ever changing needs as the organization evolves, growths, and re-invents itself.

2014 Salary Outlook: A Repeat of Prior Years

Friday, November 22, 2013

 

About this time of the year, human resource professional organizations often disclose their salary and wage increase projections for the coming year.  In an 11/14/2013 article written by Jason Adwin, Vice President at Sibson Consulting and posted on The Society for Human Resource Management (SHRM) website, the author discusses salary and wage changes for the coming year and the last several years.  Adwin makes a clear and compelling connection between the continued high level of unemployment and the lack luster changes in employee compensation projected for 2014, as well as those experienced over the last two years.  With salary budget increases hovering at or just below 3% and salary-range adjustments near 2%, it is evident that most organizations feel no pressure to raise compensation levels.

 

With strong evidence there is little wage and labor market pressure to push salary budgets and ranges faster and higher, what is an organization’s alternative for rewarding and recognizing high achieving talent?  Variable pay plans, a.k.a., incentives, bonuses, and commissions is generally the response.  Stephen Bruce, Editor and HR Daily Advisor at Business and Legal Resources (BLR), quotes Teri Morning from a recent BLR webinar:

 

“Average performance is already compensated for in the base pay at the market rate.

Average performance doesn’t necessarily require a merit increase.

Variable pay programs should pay for themselves.

Incentive pay isn’t always applicable to every position.

Variable pay rewards outcomes—not good tries.”

 

The issue with many variable pay plans is they often fail to recognize and address that today’s workforce in not homogeneous.  Cohort members are going to perceive reward and recognition differently from their adjacent group associates.  What motivates a Baby Boomer may have the opposite effect for a Gen-Xer, even to the point of deceasing performance.  This phenomena means that how reward and recognition systems are designed and communicated, must include continuances for tailoring that reward and recognition to the individual employee.

 

When communicating feedback to a multi-generational labor force, reward and recognition messages have to be crafted to each group:
 

·         Traditionalists – you are valued for your experience,

·         Baby Boomers – you are valued, the organization needs you,

·         Gen-X’ers – have it your way,

·         Gen-Y’ers – you'll work with creative peers in a creative environment.

 

A variable pay plan which pays a 10% incentive for on-time on-budget project completion will be perceived differently by each generation.  A Traditionalist may expect a “pat of the back” and a “we could not have done it without your years of experience”.  A Baby Boomer would have been happy the check.  A Gen-X’er will want recognition that doing it their way was really the way to do it.  A Gen-Y’er will want to pick their next assignment and staff it with creative types just like themselves.