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Archive for September, 2013

The Timing of Merit Increases

Common review date or focal point increases means that performance/salary reviews are done for every employee effective on the same date once a year. Anniversary date means reviews are done at each employee’s “anniversary” date of hire.  Many companies have moved to the common review date method but there are still companies using the anniversary date system.  If you are considering one or the other or making a change, below are advantages and disadvantages for each method.

Common Review Date Advantages

  • Simple to administer
  • More consistency in appraisals, communications, and rewards.
  • All increases are based on the same full fiscal-year results.
  • Performance appraisal process gets showcased at the same time throughout the organization.
  • Discourage employees from seeking or expecting increases at other times.
  • If goals are aligned with company goals, performance can be reviewed against company year-end results.
  • On time review completion rates are better
  • Management can look at the entire organization with the top and bottom rated employees

Common Review Date Dis-Advantages

  • Large one-time cash flow cost.
  • Everyone getting increases at the same time makes comparisons easier and can lead to inequity complaints
  • Supervisors may not properly differentiate between employees in fear of comparisons and complaints.
  • Supervisors compare employees against each other rather than against each employee’s own work
  • People promoted or transferred to another department before the common increase date are judged by new bosses who are unaware or unwilling to pay for their performance in another department.
  • Can require a lot of time for managers with a large number of employees in a prescribed period of time
  • Performance ratings are typically tied to a specific salary increase percentage, and the ratings must meet the required distribution to meet budget which can result in a forced distribution ratings.

Anniversary Date Advantages

  • Reviews and rewards are personalized by employee’s anniversary of hire or last increase.
  • More flexible for changing reward intervals for reasons of individual merit, range caps or company finances.
  • Reduces chances of employees comparing increases because they come at different times.
  • Most supervisors are doing performance appraisals several times throughout the year gaining more practice and skill with the process
  • Supervisors doing the performance appraisal for one employee at a time can devote more time to each employee.
  • Less visibility of “forced distribution”, and managers believe they can rate employees more fairly

Anniversary Date Disadvantages

  • Hard to plan, budget and control.
  • Increases allocated from month to month may be biased or inconsistent.
  • Individual performance review periods may not fit fiscal year performance cycles, so individual performance must be judged before all results are in.
  • Managers tend to delay/postpone reviews because they are not being as closely monitored by HR.
  • Retro-active salary increases due to the manager missing the payroll effective date are more prevalent
  • Departments can easily go over budget
  • There is less alignment to corporate goals as reviews occur and goals are set throughout the year

If you do decide to change the timing of your salary/performance system, a thorough and simple employee communication plan and advance management training will be the key to success.  Compensation changes of any kind can be disruptive, so do your homework.

As a company, it is important to utilize benefits survey data, compensation surveys and salary reports. Having this information at hand allows you to plan a budget, including competitive employee salaries and benefits, which will help you to hire and retain a happy, talented team.  WageWatch surveys over 5,000 hotels, resorts and casino properties in the United States and the Caribbean.  WageWatch’s proprietary survey process enables human resources professionals to access the most up-to-date and accurate wage and benefits data and prepare custom reports based on their needs and requirements. Additionally the WageWatch Compensation Consulting Team is available to assist you with all of your compensation needs such as pay structure design and implementation, market competitive analysis, internal equity audits to address employer concerns and add creditability to pay practices and much more. For more information, please contact WageWatch at 480-237-6130 or contact us online.

Posted in Uncategorized on September 26th, 2013 · Comments Off on The Timing of Merit Increases

Statistics for Compensation: Part 1

The purpose of statistics in compensation is to provide mathematical tools to objectively identify and describe how much jobs are worth and how to pay employees in the context of organizational goals. Compensation professionals are tasked with making a business case for a recommendation to change pay or pay program by analyzing the underlying assumptions, pulling data from the right source, and preparing concise conclusions for the management team.

WageWatch reports its data in several ways. The Benchmark report is a fast and easy way to report on national, regional, state, and city market cuts of data. The PeerMark report is our advanced tool that allows the survey subscriber to build custom competitive sets at a granular or niche market level.

When analyzing data from either report, there are many analytic tools to choose from and it can be overwhelming for those preparing a compensation project for the first time. A straightforward and highly effective statistic to use to describe a situation and develop a solution is to use percent (%). In basic terms, a percent is a measure of relative value.

The percentage forms the basis of the WageWatch reports. Percent is used in many places in the survey in several different applications.

  1. Percent Difference – The most common application of percent is its use in describing the difference between two numbers. The percent difference can be used to compare how wages change year over year as well as the difference between external to internal rates. There are two ways to describe differences using percent.

For example, your average rate of pay for a select service hotel Front Desk Manager is $45,000 per year and the market average rate is $55,000. It is easy to calculate that you pay $10,000 less per year on average for this job. It can be expressed as a percent two ways.

  1. You pay 18.2% less than the market average

i.     ($45,000-$55,000)/ $55,000 * 100 = -18.2 or 18.2% less

  1. The market average is 22.2% more than your rate.

i.      ($55,000-$45,000) / $45,000 *100 = 22.2%

Both calculations are correct, so which to use? You could use both. “Our Front Desk Manager is 18.2% below market average. We need to raise our rate by 22.2% percent to match market average.” You can avoid having to explain the figures by restating this conclusion as “Our Front Desk Manager is 18.2% below market average. We need to raise our rate by $10,000 to match market average”.

  1. Percent Position – The percent position is used to state your overall market position relative to the competition in the data set. WageWatch allows subscribers to build custom reports by including a target percentile statistic that ranges from 11% to 89%. Percentile is a position that a given percentage of the data is less than or equal too. For example, if your target percentile is 60th, than that is a market position where 60% of the competitors are less than or equal to and 40% are greater than or equal to.
  2. Percent as Ratio – A percent is a ratio multiplied by 100. We can see this when looking at dashboard metrics such as Turnover Rates. If a company fills one front desk agent position out of ten for the year, then the turnover rate can be expressed as 1:10 or 10%.

For these reasons, it is critical that compensation and HR professional understand how to use percent to communicate the story behind the data in a simple way. Please contact WageWatch if you need assistance with interpretation the statistics reported, help building custom reports, or have a need for our wide range of consulting services. For more information on our services and surveys please call WageWatch at 888-330-9243 or contact us online .

Posted in Uncategorized on September 19th, 2013 · Comments Off on Statistics for Compensation: Part 1

Strategic Issues and The Pay Model

Perceptions of compensation vary.  It is seen as a measure of equity and justice.  Stockholders are focused on executive compensation.  Legislators may view average annual pay changes as a guide to adjusting eligibility for social services.  Employees see compensation as a reward for their services and a job well done.  Managers will view compensation from the perspective of a labor cost, but also from a competitive perspective that enables them to recruit, engage and retain employees.  The four basic compensation policy decisions that an employer must consider in managing compensation are: 1. Internal consistency, 2. External competitiveness, 3. Employee contributions, and 4. Administration of the pay system.  The balance between the four policies becomes the employer’s compensation strategy.

It is important that compensation is linked to an organization’s overall goals and strategies and aligned with Human Resource strategy.  Not doing so, can lead to serious issues of employee retention, engagement and productivity that can be laborious and expensive to repair.  Compensation for many organizations is the single largest business expense and is visible and important to employees, managers and stockholders.  Therefore it is important to strategically plan and regularly evaluate compensation systems.  Working with your company’s executives is key to ensuring your compensation philosophy is supporting business objectives.  Strategic objectives will include significant challenges and priorities now and over the next 2 – 5 years.  Some examples are business growth plans, key talent and training objectives, market competition, and whether or not you are in a union environment.  Some other key considerations for your compensation program are:

  • Attracting the appropriate skill sets and types of employees when needed
  • Rewarding employees for their efforts, such as increasing workloads, taking on new tasks and projects
  • Employee morale and perceived value of company’s benefits, incentives, and work environment
  • A mix of base pay, incentive pay, work environment and benefits that makes the most sense for the organization
  • The link between base and incentive pay with performance
  • Legal issues such as wage and hour

An example of a compensation strategy that aligns with other Human Resource initiatives is matching pay ranges to desired outcome.  If quality, experience and a sophisticated skill set are a strategic advantage to an organization, then it will not be successful hiring employees significantly below the market rate.  Determining whether the organization wants to lead, lag or match the market is a key decision.  A ‘mixed market position’ approach has become more common as employers realize that a one-size-fits-all strategy does not fit the entire workforce.  For example, location and market competitiveness will impact your pay levels and certain key or hard to fill or retain positions may require pay well above the market, while other positions may be ok with a lag approach.

A successful compensation program will focus on top priorities, guide employees to where their effort can create the most value, create financial and non-financial consequences for success and failure, drive and reward the development of skills and encourage teamwork and collaboration.  Many organizations today keep an eye toward aligning workers’ interests with company goals through innovative types of rewards in the workplace, including skill based pay and goal sharing.  The right total rewards system is a blend of monetary and nonmonetary rewards offered to employees and can generate valuable business results.  These results range from enhanced individual and organizational performance to improved job satisfaction, employee loyalty, and workforce morale.

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 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 September 11th, 2013 · Comments Off on Strategic Issues and The Pay Model

Tip Credit Debate

There has been a lot of talk and debate lately regarding increasing the tip minimum wage.  The WAGES Act, introduced in Congress by Maryland Congresswoman Donna Edwards, if passed, would raise the federal tip minimum from $2.13 an hour.  This would be the first increase since 1991.  The federal tip minimum wage was originated in 1966 and was 50% of the federal minimum wage.  Today it is just 29.4% of the federal minimum wage.  Over half the states and the District of Columbia have tip minimums that are higher than the federal. These range from $2.33 an hour in Wisconsin to $7 in Hawaii.  Washington is one of seven states that has no tip credit law, so employers pay the state’s full minimum wage, currently at $9.19 an hour.  The other states that do not have tip credit regulations are: Alaska, California, Minnesota, Montana, Nevada, and Oregon.  Servers who work in these states receive the same minimum wage as all other workers.

Also being debated recently is changing to the tip-free European style of service where the employees are paid the full regular minimum wage or higher.  There are U.S restaurants that do pay by this model but they are in the minority and tend to be the “higher end” restaurants primarily in major US cities such as Los Angeles and New York City.  Some feel service standards would decline if there was no tipping.  On the other side of the debate is the concern regarding the poverty level among tipped employees.  More workers will be spending their careers in these industries, as better-paying jobs such as manufacturing and other fields are not expected to increase in the years ahead.

Under federal law and in most states, employers may pay tipped employees less than the minimum wage as long as it does not fall below the tip minimum wage and employees must receive enough in tips so that their base rate plus tips received equals at least the regular minimum wage.  The difference between the regular minimum wage and the base rate in which the employer pays is called a “tip credit”, which is essentially an employer credit towards payment of the regular minimum wage rate.  If a tipped employee does not earn enough in tips to bring his/her total compensation up to at least the applicable minimum wage (federal or state), the employer has to pay the difference.

Wage and hour enforcement of tip regulations is crucial.  Tipped workers may be shortchanged by employers that don’t know or understand the law.  Deductions to pay for things such as breakage, and cash register shortages are illegal if they reduce the pay below the minimum wage.  Overtime must be calculated on the full minimum wage and not just the tip minimum wage and overtime must include all service charges, commissions, bonuses and other remuneration. A specific tip credit notice must be provided to employees.  Tip pooling arrangements are permitted but cannot include employees who normally do not receive tips such as cooks and dishwashers.  Tip pooling also requires a special notice to the employees. There are specific rules regarding how to compensate tipped employees who work non-tipped jobs or duties for part of their time.  Tips paid by credit card also have specific regulations regarding the amount that the employer can deduct to recoup the fee for the credit card transaction as well as credit card tips must be paid to the employee on or before the next regular pay day.  Refer to your federal and state wage and hour resources for detailed regulations.

Remaining compliant with wage and hour regulations is an important task that Human Resources and Compensation performs for an organization.   Another important task they perform is to ensure fair and competitive pay practices.  For the good of your employees, it is helpful to analyze benefits survey data, compensation surveys and salary reports.  Having this information at hand allows you to plan a budget, including competitive employee salaries and benefits, which will help you to hire and retain a happy, talented team.  At WageWatch, our expert evaluators provide businesses in a large range of industries with accurate and beneficial benefits survey data, compensation surveys and salary reports to ensure that payment and benefits plans are on par with those in the industry. For more information on market compensation data, please call WageWatch at 888-330-9243 or contact us online (https://www.wagewatch.com/Contact/ContactUs.aspx).

Posted in Uncategorized on September 5th, 2013 · Comments Off on Tip Credit Debate