WageWatch Ibrief Blog

Login

Archive for August, 2013

Compensation Philosophy

A compensation philosophy is a comprehensive statement or policy document of the company’s position on employee compensation and it is a commitment to how it values employees. It explains the “why” behind employee pay and creates a framework for consistency.  A compensation philosophy explains how the organization’s total rewards are structured in relationship to competitors; whether the organization pays at, above or below the market.  Organizations attract, motivate and retain employees through total reward packages which are a mix of base pay, incentive pay and benefits.  These total reward elements are described in detail in a compensation philosophy.

A well-designed compensation philosophy supports the organization’s strategic plan, business goals, competitive position, and operational objectives.  A compensation philosophy is influenced by many factors, including company size, revenue, expected profits, industry, business objectives and competitiveness and market value of the company’s jobs.  The organization’s overall view and philosophy regarding the employees and responsibility for those employees will also factor in to the compensation philosophy.

Compensation philosophies are typically developed by the human resources in close collaboration with the leadership team. It is critical to obtain the input and approval of the leadership team for your compensation philosophy.  Periodic reviews are important to ensure continued effectiveness and if any modifications are needed based on current factors affecting the business.  For example, changes in the market place will occur and certain jobs can become ‘hot’ either externally in the market or internally within the company, which in turn can impact your ability to hire and retain unless certain changes are made to your pay practices.

Key components of a compensation philosophy include:

  • Competitive and attractive total reward packages that support the business objectives and recruiting efforts.
  • Employee performance motivators
  • Effective rewards to retain key talent and high-performing employees.
  • Define the organization’s competitive market position (lead, lag, etc.)
  • Define the market you will use for external market comparison or your “competitive set.”
  • Define the process used to determine internal equity (job evaluation).
  • Clearly defined management responsibilities.
  • Administration Guide for the compensation program

An effective compensation philosophy should be competitive, equitable, perceived by employees as fair, fiscally sound and legally compliant.  It is important to effectively and clearly communicate your compensation philosophy to your employees.  Transparency of an organization’s compensation philosophy can benefit employers because a sound philosophy consistently applied creates a sense of fairness.  Communication can also aid in recruiting and retaining efforts.

Maintaining a competitive advantage and being able to retain key employees is increasingly important.  At WageWatch our compensation consultants can assist with your organization’s compensation needs and help you ensure that your compensation programs are supporting your company’s business strategy and objectives.  WageWatch also offers accurate, up-to-date benefit surveys, salary surveys and pay practices data that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online .

Posted in Uncategorized on August 28th, 2013 · Comments Off on Compensation Philosophy

Bonus and Incentive Plans

Bonus or incentive pay is compensation over and above base salary and is a reward to employees or to a team for achieving certain goals.  Bonus pay can be used to improve morale, motivation, and productivity.  Not all bonus plans achieve what they set out to accomplish. Therefore, it’s important to analyze the advantages and disadvantages of various incentive plan components to determine the plan that will be the best fit for your organization, the specific department, team and employees being rewarded.  For example, you will want your plan for your sales employees who work with customers and are responsible for company earnings targets to promote high levels of performance as well as encourage ethical behavior.

Though the terms commission and bonus are often used interchangeably, there is a difference.  Commission is a percentage of a sale.  Commissions are often used for sales scouts or business developers. Payouts are typically monthly.  Bonus is an incentive paid for meeting performance criteria against a specific goal.

There are several types of bonus programs. Some plans give employees a share of the company profits regardless of individual or team performance.  Other programs give incentives to individuals or teams to perform at or above certain thresholds.  Below are some of the common types of bonus plans.

Profit Sharing is a basic type of bonus program. A company sets aside a predetermined amount for a bonus dependent on company profits. The purpose of profit sharing bonuses is to engage employees in a more active role in understanding how their work affects the company’s performance and profitability.

Gain Sharing bonus programs are most common in manufacturing and are designed to reward productivity and improved product quality.

Spot Bonus Awards reward employees on the spot for achievements that deserve special recognition. Spot bonus awards are typically $50 and up and can be made by the immediate supervisor and any higher-level person or peer in the company. You can get these for just being extra helpful.

Noncash Bonus Programs are special recognition programs such as ‘employee of the month’.
Sign-On Bonuses are commonly used for new employees joining the company and often serve to add compensation for the first year without increasing the base salary level.
Mission, Task or Milestone Bonus are given as a reward for special achievements and are usually offered sparingly.

Referral Bonuses are paid to employees who refer friends and former coworkers for open positions.  The referral bonus is typically paid only if and when the referral is hired.
Retention Bonuses are given to employees in circumstances, such as a merger or acquisition, to provide continuity through a certain time period when there is potential uncertainty about an employee’s continued employment at the company.

Holiday Bonuses typically range from small gifts to one month’s salary. This practice is not a true bonus since no performance is required to receive it.

Sales Commissions are awarded to salespeople for selling. Typically these awards are paid out as a percentage of sales volume.

Bonuses can be discretionary or non-discretionary. Discretionary bonus plans give no ‘promise’ of payment to the employee. The most common example of a discretionary bonus is the holiday gift, such as the classic holiday turkey or more common today, the gift card. In order for the bonus to qualify as discretionary, the employer must maintain complete discretion over whether any payments will be made and, what amount, if any, will be paid to each employee. Discretionary bonuses cannot be tied to performance or goals of any kind and should be announced just prior to payment.  Also, if a bonus qualifies as discretionary, it does not have to be included in the overtime calculation for non-exempt employees.  When a non-discretionary bonus is paid to a non-exempt employee, under the Fair Labor Standards Act (FLSA), the employer must generally count the bonus pay in the employee hourly rate when calculating overtime pay.  Be aware that if an employer regularly provides a “discretionary” bonus such as the ‘year-end’ bonus and the amount of the bonus varies little from year to year, this may inadvertently create a non-discretionary bonus plan.  Please refer to federal and state wage and hour regulations for detailed information regarding what can qualify as discretionary versus non-discretionary.  Additionaly, employers should carefully craft and implement bonus plans with the assistance of counsel and be certain to clearly communicate the bonus plans to employees.

Bonus plans are also a key part of your compensation package and are important for maintaining a competitive advantage and being able to recruit and retain key employees.  At WageWatch our compensation consultants can assist with your organization’s compensation needs and help you ensure that your bonus plans and compensation programs are supporting your company’s business strategy and objectives.  WageWatch also offers accurate, up-to-date benefit survey data, market compensation data and salary reports that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online .

Posted in Uncategorized on August 21st, 2013 · Comments Off on Bonus and Incentive Plans

The Impact of the Affordable Care Act on Business: Part 2

Last December 2012, we here at WageWatch wrote how the Affordable Care Act was already causing much confusion for American companies as well as for the general public. The law, as passed, was over 2,500 pages long and requires thousands of additional pages of regulatory policy in order to be enacted.  Now, less than a year later, there have been changes and updates to the new law and the regulatory policies surrounding it. As employer, it is easy to get caught in the details and lose sight of the big picture.

Most of our Human Resources clients have already begun planning for a post-ACA world in 2014. For those who have not, let’s take a look on where to start and how to navigate the employer concerns.

To begin, management needs to have a conversation regarding the company’s philosophy towards employee health benefits. Look to what the organization has done in the past and use that as a road map for the future. What was the philosophy before the ACA? Did it successfully support your organizational goals? Does the philosophy need to change comply with ACA?

There has been a significant change to the ACA recently. The employer mandate, which is the penalty that will be incurred by employers with more than 50 employees if they do not offer health insurance to full time workers, has been delayed a year from 2014 to 2015.

The intent of the employer mandate was to prevent disruptions to currently insured employees by disincentivizing employers from eliminating existing healthcare plans. However, because employers will not face a penalty if it employs less than 50 full time workers, many were concerned the employer mandate would create an incentive to employ part-time workers instead of full-time.

The Administration’s goals in delaying the mandate by one year was to allow the government more time to simplify reporting requirements and to provide employers more time to adapt. The announcement was met with criticism from the opposing political party as a politically motivated move.

The delay does give employers one more year to adjust their current benefit offerings to be ACA compliant. To do so, these plans need to meet or exceed the following four requirements:

  1. Provide minimum essential health benefits as defined;
  2. No annual or lifetime limits on these essential benefits;
  3. No copayments or deductibles on preventive care; and
  4. No Pre-existing conditions, guaranteed issue regardless of medical condition

Employers, with 50 or more FTEs, who will not or cannot offer a plan that meets or exceeds these requirements, will suffer a $2,000 per full time employee penalty.

The experts at WageWatch want you to know how important it is to be aware of the new policies under the Affordable Care Act and their effect on small businesses. Employers need to properly plan for the future by developing accurate budgets that take the changing costs of healthcare benefits into consideration for the year 2014 and beyond. For assistance with your budget, WageWatch offers cost-effective reports, including salary, wages and benefits survey data. To learn more about the services provided by WageWatch, please call 888-330-9343 for assistance or contact us online.

Posted in Benefits & Compensation on August 15th, 2013 · Comments Off on The Impact of the Affordable Care Act on Business: Part 2

Best Practices: Balancing Internal and External Pay Equity

Whether in the context of real estate, common stock, equipment or wages, equity is a term that relates value between different choices, opportunities or investments. Studies into organizational behavior theorize that employees are continuously monitoring and evaluating their work and pay against those of their peers. Perceived unfairness can result in severe production problems.

In order for a business to operate effectively, the company needs to develop a compensation strategy that achieves the two goals of paying wages considered fair to employees, while providing a financial return on the investment for the employer.  Wage equity has two approaches. The first is externally driven by market forces. The second is an internal focus, driven by the employer’s valuation of the job.

Using market pricing to establish wages and salaries is called market based pay. WageWatch has found that market based pay is the best practice approach to designing compensation policy in competitive market segments such as the hospitality, healthcare, and not-for-profit. Every WageWatch salary survey is a market based strategy. Market based pay systems benefit from being inherently empirical, built from research, through surveys, reporting what similar jobs are paid in the organizations that one competes with in the labor market.

Committing to a market base pay compensation structure means that employees will be paid at a competitive wage when compared with rates offered to people in similar positions in peer organizations. The labor market, ruled by supply and demand, drives this approach. The WageWatch PeerMark ™ Survey and online report building tool is designed for custom selection of competitors from which to accurately benchmark job titles. Wage and percentile variances illustrate where you are positioned in the marketplace.

External equity is one side of the coin. There is also the employer’s perception of fairness called internal equity. Where external equity is a measure of market competitiveness forming its basis on job functions and duties, internal equity is a measure of internal worth with a basis in job autonomy and responsibility. If you have multiple incumbents in the same job title who are paid differently, the differences in pay are an expression of internal equity.

We analyze internal equity in a way similar to external market analysis in that we determine worth relative to benchmarked job titles, but different in that the benchmarks are internally established. Internal benchmarks are particularly useful in evaluating both unique and hybrid job titles for which external benchmarks do no exist. Variance analysis here looks inward at wage compression, organization structure, reporting relationships, and job families.

Managing external and internal equity is a dynamic process requiring human resources to stay vigilant on changes in market conditions and business demands. The market based pay approach to compensation gives the influence of the external market on wages precedence over internal equity. The WageWatch PeerMark ™ Salary Survey reports the most current data available which forms the basis of the external analysis. However, since both approaches have the aligned goals of attracting and retaining a talented workforce, the WageWatch Compensation Consulting Team is available to conduct internal equity audits to address employer concerns and add creditability to pay practices.  WageWatch also offers accurate, up-to-date benefit survey data, market compensation data and salary surveys that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online .

Posted in Uncategorized on August 8th, 2013 · Comments Off on Best Practices: Balancing Internal and External Pay Equity

Budget Season: Are You Prepared?

It’s that time of year again when companies are preparing their budgets for the upcoming year.   For HR professionals, it is probably not one of your favorite tasks, but by embracing the process, it can be an opportunity to reinforce the HR function as a strategic partner. In the WageWatch 6/12/13 blog, Budget Boot Camp, we covered the fundamentals of the HR Budgeting process.  Now we will dive a little deeper into the specific elements of the HR Budget.

Budgets are used to monitor progress toward goals, help control spending, and predict cash flow and profit.  The challenge is predicting the future 100% accurately and in turn developing effective budgets.

It is valuable for HR to gain a strong understanding and appreciation for the value of good annual budgeting.  In most companies, employee costs constitute the majority of fixed costs and therefore the HR budget contains key and critical elements of the overall company budget.

Here are a few things you can do to make the budget process a smoother one:

  1. Throughout the year, ensure to include the CFO when reviewing such things as pay increases with the CEO.  This can go a long way to developing a partnership with the CFO.
  2. The credibility of the HR function is significantly improved when you can demonstrate real savings and value for HR Projects and Processes.
  3. Empower your HR team.  Every HR team member should own their line items in the budget.  For example, recruiting is responsible for their search firm fees, recruiting tools and relocation.
  4. Link the development of your budget to corporate strategy.   This gives a clearer understanding of strategic goals.  And, in turn, should create greater support for the goals, and, a stronger companywide performance. The key to linking the two is communication.  In order to communicate strategic goals, top management needs information about customers, competitors, technology, etc. and this information must come from support units such as Human Resources.
Budgeting   requires the collection of many forms of data. From a human resource   perspective, below are some items that would be included in the budget:

Recruiting

  • Advertising & Agency fees
  • Employee referral program
  • Background checks / Drug Testing
  • Recruitment expenses
  • Applicant tracking system costs

Training

  • Training Programs
  • Travel expenses
  • Consulting fees

Compensation and Benefits

  • Payroll costs
  • Salaries  & Overtime
  • Compensation surveys / Benefit surveys
  • Incentive compensation
  • Health and Welfare Benefits
  • Retirement Plan
  • Employee Assistance Program

Employee and Labor Relations

  • Recognition program  / Service Awards
  • Employee Opinion Survey
  • Performance appraisal software
  • Employment and Labor relations expenses (attorneys, consultants)

Other

  • Strategic planning (data/consultants)
  • HR databases such as HRIS/subscriptions/memberships/books

At WageWatch our compensation consultants can assist with your organization’s compensation needs and help you ensure that your compensation programs are supporting your company’s business strategy and objectives.  WageWatch also offers accurate, up-to-date benefit survey data, market compensation data and salary surveys that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online .

Posted in Uncategorized on August 1st, 2013 · Comments Off on Budget Season: Are You Prepared?