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MARKET PRICING VERSUS JOB EVALUATION

I began my career in Compensation in the early 1990s using a combination of market pricing and job evaluation to establish pay structures.  Market pricing is the ‘external’ method, collecting salary data, usually through a salary survey, for similar jobs from other organizations to establish the ‘market rate’ or ‘price’ for the job.  Job evaluation is the ‘internal’ method, focusing on internal job worth, each job is rated or scored on several different factors and the total score equates to the job’s salary grade in the pay structure.  Over the years, the use of the point factor system fell by the wayside.  Having used both methods together, at first I was uncomfortable with relying only on market pricing and salary surveys.  But over time I saw that I was arriving at the same end result, and ultimately, where I wanted to be which was remaining competitive with the market.  Still I wondered if I wasn’t missing something in my analysis.  I found through my informal research that most of my compensation colleagues were also relying solely on the external market and the use of compensation surveys and the prevalent thinking was that a job is worth only what the market says it is worth. 

Job evaluation approaches were prominent when people stayed with the same employer, often their entire career, progressing through the internal hierarchy.  Most hiring was done at the entry level, and recruiting talent from the outside, was not as dominant as it is for today’s organizations.  Therefore, pay relationships between jobs inside the organization were more important than the external job market.  Today the ability to attract and retain necessary talent is critical and in order to do so compensation must remain competitive with the external market.

Still the debate goes on whether it is better to use job evaluation or market pricing and salary surveys to determine employee compensation.   Having an intimate and in-depth understanding of the jobs in your organization is critical to correctly matching your jobs to the external marketplace.  There is no scientific single rate of pay for a job or role, and rates may vary even for the same occupation and in the same location.  Experienced compensation professionals will be able to interpret the data for an organization and its jobs.   Though today compensation in the private sector is largely reliant on external market pricing, in my experience both techniques provide essential data to determine fair and equitable compensation practices. Combining market data with your internal job valuations to drive decision making is ultimately the best practice.

WageWatch Compensation Professionals can provide your business with compensation surveys and salary reports, and can assist you with your market pricing, evaluation of your jobs and organizational needs to establish a salary program that is both externally competitive and internally fair and equitable. Our innovative company is a leader in the collection of data for surveys and salary reports, which allows us to provide services to a wide range of industries in both the private and public sector. To learn more about WageWatch compensation surveys, salary reports and other services, please call 480-237-6130 or contact us online  www.wagewatch.com.

Posted in Uncategorized on December 17th, 2014 · Comments Off on MARKET PRICING VERSUS JOB EVALUATION

TIP CREDIT AND TIP POOLING

The federal tip minimum wage was originated in 1966 and at that time was 50% of the federal minimum wage.  Today it is 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 with no tip credit law, so employers pay the state’s full minimum wage, currently at $9.32 an hour, the highest in the nation.  The other states that prohibit the tip credit are: Alaska, California, Minnesota, Montana, Nevada, and Oregon. Servers who work in these states receive the same minimum wage as all other workers.  

By definition, a tipped employee customarily and regularly receives more than $30 per month in tips.  Under federal law and in most states, employers may pay tipped employees a base wage of 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 hourly rate plus tips received equals at least the regular minimum wage.  The difference between the regular minimum wage and the hourly rate in which the employer pays is called a “tip credit”, which is essentially a credit for the employer towards 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, the employer has to pay the difference.  Tipped employees’ total earnings (base wages paid by employer + tips) must equal at least the minimum wage that governs in their jurisdiction. 

Overtime must be calculated and paid on the full minimum wage for tip employees and not on the tip minimum wage or direct cash wage payment.  Employers are required to provide a tip credit notice to their tip employees in advance of their pay and any pay changes.  The notice informs each tipped employee about the tip credit allowance before the tip employee’s first paycheck and before any paycheck in which there is a pay change. The notice must include the amount of wage the employer will pay, the amount the employer will credit against tips as well as specific tip credit rules.

 In states that allow employers to require tip pooling, certain employees such as wait staff may be required to pool their tips with bartenders and bussers for equal disbursement at the end of a shift. All employees subject to the pool have to chip in a portion of their tips, which are then divided among a group of employees. An employee can’t be required to pay more into the pool than is customary and reasonable, and the employee must be able to keep at least the full minimum wage.  Only employees who regularly receive tips can be part of the pool. Employees can’t be required to share their tips with employees who don’t usually receive their own tips, like dishwashers or cooks nor can tips from a tip pool go to employers.  In some states, managers or supervisors are also prohibited from receiving tips from a tip pool.  There is no maximum amount or percentage of tips for a valid mandatory tip pool, according to the federal rules. But employers must notify tipped employees of any tip pool contribution requirements and are prohibited from retaining tips for any other purpose. 

According to the FLSA, mandatory service charges (ie., mandatory 15% charge paid out to wait staff) are not considered tips and cannot be counted for use as a tip credit. The service charge may be counted as part of the employee’s minimum wage and overtime requirements. However, employees who receive tips in addition to a mandatory service charge are considered tipped employees by the FLSA. A well planned salary and total rewards package will motivate your employees, help your company maintain a competitive advantage and help retain key employees.  Please refer to your federal and state wage and hour resources for full details regarding all tip wage regulations. 

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 December 10th, 2014 · Comments Off on TIP CREDIT AND TIP POOLING

DOCKING EXEMPT EMPLOYEE PAY

The application and rules for the federal FLSA salary basis test are often misunderstood and not administered accurately or consistently.  During my human resource career I have seen mistakes made regarding this rule over and over again. 

First let’s understand what the term “salary basis” means. An exempt employee that regularly receives a predetermined amount of base salary each workweek is paid on a “salary basis”.  This applies to employees who are determined to be exempt under the federal FLSA exemption tests including both the minimum salary test and qualifying under one of the duties tests (ie., administrative, executive, professional, computer, outside sales, etc.).  The minimum weekly salary that must be paid to ‘exempt’ employees under the federal rules is $455.  Please refer to your federal and state wage and hour for exceptions to the salary requirements.  The salary basis pay requirement for exempt status does not apply to some jobs (for example, doctors, lawyers and schoolteachers are exempt even if the employees are paid hourly). 

Now let’s talk about the Salary Basis Test.  An employee’s ‘exempt’ status can be jeopardized if the salary basis test rules are not followed.  The Salary Basis test provides rules regarding what pay deductions can and cannot be made to exempt employees’ weekly base salary.  Generally the predetermined weekly salary cannot be reduced because of variations in the quality or quantity of the employee’s work. Except for a few permissible deductions, an exempt employee must receive the full base salary for any work week in which the employee performs any work, regardless of the number of days or hours worked. This includes any work done remotely such as checking email and voicemail.  An employer cannot make deductions from an employee’s predetermined base salary, because of a business slowdown or lack of available work.

The FLSA salary basis test applies only to reductions in monetary amounts. Requiring an employee to charge absences from work to leave accruals is not a reduction in “pay,” because the monetary amount of the employee’s paycheck remains the same. 

Full Day deductions from pay are permissible when an exempt employee:

  • Is absent from work for one or more full days for personal reasons other than sickness or disability;
  • For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide sick leave or PTO plan, policy or practice of providing compensation for salary lost due to illness;
  • To offset amounts employees receive as jury or witness fees, or for military pay;
  • For partial week worked during the initial or terminal week of employment,
  • For weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act,
  • Deductions in pay are also permitted for intermittent FMLA leave when the weekly base salary is reduced to coincide exactly with the reduced workweek,
  • When an exempt performs no work for a full workweek.

For the following 2 permissible deductions, you should have communicated formal policy(s) detailing disciplinary procedures:

  • For penalties imposed in good faith for infractions of safety rules of major significance;
  • For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.

It is important that as an employer, you have a clearly communicated policy permitting or prohibiting improper deductions from exempt employees’ base salary including a complaint mechanism and reimbursement to employees when improper deductions are made.  You should also have a clearly communicated policy for your exempt employees stating that under no circumstances should work be performed during unpaid time off.  The exempt status of your employees will be safe as long as you have clearly communicated policies in place, make good faith efforts to comply with the salary basis test and can show that willful violations have not been made.  For full details regarding federal FLSA, visit http://www.wagehour.dol.gov and links to your state labor department can be found at http://www.dol.gov/whd/contacts/state_of.htm.

At WageWatch our compensation consultants are focused on your organization’s compensation needs and ready to 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 December 3rd, 2014 · Comments Off on DOCKING EXEMPT EMPLOYEE PAY

STATE MINIMUM WAGE CHANGES FOR 2015

In 2014, thirty-eight states introduced minimum wage legislation and ten states and the District of Columbia enacted increases.  Currently, twenty-three states and D.C. have minimum wages above the federal minimum wage, and eighteen states, Guam, and the Virgin Islands have minimum wages the same as the federal minimum wage of $7.25.  Nine states, American Samoa, and Puerto Rico fall under the federal minimum wage due to having either no state minimum wage enacted or a state minimum wage that is below the current federal minimum wage. 

As a result of the November 2014 ballot measures, four states – Alaska, Arkansas, Nebraska and South Dakota – approved minimum wage increases in the 2014 election; Illinois voters approved an advisory measure.  Minimum wages will go up in nine states on Jan. 1, 2015 because of indexed increases in their state law: Arizona, Colorado, Florida, Missouri, Montana, New Jersey, Ohio, Oregon, and Washington. 

Alaska’s minimum wage will increase from $7.75, to $8.75 effective Jan. 1, 2015 and to $9.75 effective Jan. 1, 2016. In subsequent years, the state minimum wage would be automatically adjusted based on inflation or remain $1 higher than the federal minimum wage, whichever is greater. 

Arkansas’ minimum wage includes a three-step increase to $7.50 effective Jan. 1, 2015; to $8 effective Jan. 1, 2016; and to $8.50 effective Jan. 1, 2017. 

Nebraska will increase it’s minimum wage to $8 effective Jan. 1, 2015, and to $9 effective Jan. 1, 2016. 

South Dakota’s minimum wage will increase to $8.50 effective Jan. 1, 2015, and provides for automatic annual increases in subsequent years, based on inflation. The measure also includes a raise to the state’s tip credit, from $2.13 to $4.25. 

Illinois voters approved an advisory question that asked whether they would support increasing the state minimum wage to $10 by Jan. 1, 2015. 

Follow this link to the WageWatch Federal and State Minimum Wage Chart with details of state and local minimum wage and pending increases.  http://wagewatch.com/resources/Minimum%20Wage%20Chart.xlsx 

At WageWatch our compensation consultants are focused on your organization’s compensation needs and ready to 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 November 19th, 2014 · Comments Off on STATE MINIMUM WAGE CHANGES FOR 2015

EXTREME MINIMUM WAGE HIKES Part 1

The idea of extreme minimum wage increases, which is also known as a living wage by unions and the political left in the U.S. and socialist regimes around the world, has been with us for centuries.  In fact, last December 6th President Obama in making a political speech for an increase in the national minimum wage to $10.10 used Adam Smith and The Wealth of Nations, published in 1776, as the foundation for his argument.   

Anytime a reference to Adam Smith, the Father of free-market economics as President Obama referred to him, is made to support an economic argument about minimum wages or a living wage you need to be cautious as those were not hot topics of the day in the 1770s.  Of course, as it turns out on further investigation, Adam Smith was not an advocate of increasing wages for the purpose of fairness or for any other social ideal.  The problem he was wrestling with in the 1770s was England was the richest country in the world but paid its workers less than Americans were made in the thirteen colonies for the same work. Adam Smith wrote in The Wealth of Nations: 

‘It is not, accordingly, in the richest countries, but in the most thriving, or in those which are growing rich the fastest, that the wages of labour are highest. England is certainly, in the present times, a much richer country than any part of North America. The wages of labour, however, are much higher in North America than in any part of England.’ 

Smith argues that the real standard of living for common workers–that is, what a common worker can afford to buy–had been rising due to technological advances.

He goes on to say that it is through industrialization and efficient production that wages as measured by what they can buy will continue to increase. Quoting Adam Smith in support of minimum wage legislation is a real stretch.  From his writings, it is more likely that Adam Smith would say that rapid economic growth with a tight labor market such as we experienced in the mid to late 1990s in the U.S. was the best way to benefit the average workers. 

Why begin the discussion about extreme minimum wage increases with quoting Adam Smith? The answer is simple; one needs to understand how it began and the history of it over time in order to understand how to address it under the current circumstances. You often see Adam Smith quoted as being an advocate for increasing wages which benefits all workers up and down the economic ladder, but he did not make that argument as part of his economic theories or any other theories. 

Overtime, most economic and social writers have addressed the issue of a minimum wage or in their minds a fair wage. Karl Marx and Frederic Engels created an economic system based on the idea, of course as implemented in Russia, China and Cuba to name a few, it failed. The Catholic Church as a response to Das Capital has called upon employers for over 100 years to pay a living wage. Father Paul Ryan, a leading social and economic writer of his time wrote his thesis entitled A Living Wage in 1912. His book became the foundation for all social and labor arguments for a living wage that followed including the very first national minimum wage passed in 1938 under President Franklin D. Roosevelt.

So, with the final approval by the Los Angeles City Council on October 1, 2014 and a commitment from Mayor Garcetti to sign the ordinance, the minimum wage for hotels will increase to $15.37 on July 1st next year (LA Hotels and the Minimum Wage). This is just the latest effort in a century long crusade to secure higher wages.  The heated rhetoric and local efforts to enact extreme minimum wage increases around the country are championed by labor unions and their political supporters versus private employers. It will not fade away as Chambers of Commerce continue to hope it will — there are over 130 cities already with living wage laws around the country.

At WageWatch our compensation consultants are focused on your organization’s compensation needs and ready to help you ensure that your compensation programs are supporting your company’s business strategy and objectives and that your pay practices are fair, equitable and non-discriminatory. We can provide your business with compensation surveys and salary reports to help you establish a budget for your merit pay program, including bonuses and incentives. Our innovative company is a leader in the collection of data for surveys and salary reports, which allows us to provide services to a wide range of industries in both the private and public sector. To learn more about our compensation surveys, salary reports and other services, please call 480-237-6130 or contact us online.

Posted in Uncategorized on November 13th, 2014 · Comments Off on EXTREME MINIMUM WAGE HIKES Part 1

COMPENSATION PROGRAM KEY OBJECTIVES

Compensation can be defined as a reward earned by employees in return for their time, skills, effort and knowledge.  Compensation includes direct financial compensation, such as wages, bonus and commissions, indirect financial compensation such as health and welfare, retirement and leave benefits and non-financial compensation such as job training and development, recognition and advancement opportunities.  A large percentage of the company budget is compensation, and therefore is a key component of the overall strategic human resource management plan. 

A compensation package can include more than salary and bonus.  It can include health and welfare benefits, retirement plan, leave benefits and various other benefits and perks.  Companies that offer a mix of salary and incentives have the highest employee morale and productivity.  It is most effective to pay incentives as soon after goals are met as feasible such as month or quarter incentive payments, rather than annual.  A good incentive plan should be easily understood by the employees with no more than two to four performance factors.  How you train, develop and manage your employees will also drive retention and performance.

When developing your compensation program, primary objectives to consider are: 

  • To attract the best people for the job
  • Retain high performers and lower turnover
  • Reward performance on specific objectives by compensating desired behaviors
  • Motivate employees to perform their best
  • Improve morale, job satisfaction and company loyalty
  • Align with overall company strategy, goals and philosophy
  • Achieve internal and external equity
  • Comply with all pay and non-discrimination regulations

While compensation is not the only thing that motivates people, compensation that is too low will demotivate employees.  Studies have found a direct correlation between top performing companies and employees that are satisfied with their pay and benefits package.  Competitive and appropriate pay can positively impact customer service.  Employees receiving fair and competitive compensation packages are generally happier with their jobs and are more motivated to perform at their peak.  Motivated employees can add to the bottom line of the organization and contribute to growth and expansion. Studies show that motivated employees take fewer sick days and have fewer disability claims.

While there are many objectives to a successful compensation program, two key objectives are ensuring internal equity and ensuring external competitiveness.  Salary Surveys provide the necessary market data to build competitive pay structures.  Good Salary Survey data provides you with the information needed to ensure your compensation package is competitive.  Salary Surveys are an invaluable tool for the setting right compensation strategy and for following and monitoring the desired pay market.  It is important that you select the right salary and benefits surveys and market data for your employees based on where you are competing for talent in your industry and outside your industry as well as geographic location.

WageWatch 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. The PeerMark™ Wage Survey is the only Web-based custom survey tool that allows individual survey participants to select their competitive set for comparison purposes.  Our experienced compensation consultants can assist with your organization’s compensation needs.  We can help you ensure internal equity and compliance with regulations as well as help you structure your compensation programs to support your company’s business strategy and objectives.   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 November 6th, 2014 · Comments Off on COMPENSATION PROGRAM KEY OBJECTIVES

EFFECTIVE JOB DESCRIPTIONS

Job descriptions describe the major duties and responsibilities of a position or job and are an essential part of hiring and managing employees. They are tools to help your applicants and employees understand their roles and accountabilities.  They can be used to establish a training checklist for new incumbents, as guideposts in the performance appraisal process and as market benchmarks for compensation surveys.  Job descriptions are not required by law however, they can provide evidence of the essential functions of a job for purposes of complying with federal employment laws.   They can also be used for disability and worker’s compensation claims.  It’s good practice to get legal advice to ensure that your job descriptions are compliant. Below are some of the legal requirements to keep in mind while writing your job descriptions. 

  • Fair labor standards Act (FLSA): Exempt or Non-exempt classification should be included on all job descriptions.
  • Occupational Safety and Health Act (OSHA) and the Americans with Disabilities Act (ADA): Working conditions and any required physical activity should be noted on all job descriptions.
  • Equal Employment Opportunity:  Include, “we are an equal opportunity employer.” In all job descriptions
  • Age Discrimination in Employment Act (ADEA): Job descriptions should not indicate age preference.

The first steps in writing job descriptions are the data collection and job analysis processes which begins with questionnaires and/or interviews with both the supervisors and current employee incumbents to gather and determine the key facts about the job.   You will need to collect information that will later be summarized into your job description template.  Generally, the data you will need will include Job Title, Immediate Supervisor, Department, Pay Grade, Working Hours and Travel Requirements, FLSA Status, Mission/Summary, Essential and Non-Essential Tasks & Responsibilities, Supervisory Responsibility, Job Requirements (education, skills and experience required for the job), Working Conditions, Physical Demands, Equipment Usage, and Disclaimer for Management Ability to Modify. 

A job description should be practical and should summarize the key elements of a job in a clear, concise manner.  Be specific and avoid using subjective adverbs or adjectives such as “frequently,” “some,” “occasional,” and “several.” It’s important to build flexibility into a job description and ensure that it is dynamic and functional.  Flexible job descriptions will allow your employees to evolve within their positions as processes, technology and organizational changes occur.  A well written job description will require and investment of time and effort to accurately reflect your organization and unique jobs.

The duties list should contain each essential job duty or responsibility that is critical to the successful performance of the job.   The list should be prioritized with the most important listed first on down to the least significant.  Do not include tasks that comprise less than 5 percent of the overall time.  Each Essential and Non-Essential Duty should be assigned a percentage of time and all duties together should total 100 percent.  Each duty should be described in one – three sentences and the first sentence should begin with an action verb.  Generally there are one or two non-essential duties that total five to ten percent of the total time and are duties such as “Assist in special projects as required”’  or “Any other task assigned by the supervisor.”   This provides flexibility to change duties over time, and captures occasional and unforeseen needs that arise.

At WageWatch our experienced compensation consultants can assist with your organization’s compensation needs.  We can help you ensure internal equity and compliance with regulations as well as help you structure your compensation programs to support 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 October 29th, 2014 · Comments Off on EFFECTIVE JOB DESCRIPTIONS

2015 EMPLOYER BENEFITS PLANNING

Remaining in the top employee benefit offerings are:  Health Care (including Dental, Vision and Prescription Drug coverage), Disability Insurance, Life Insurance, Retirement/Pension plans, and paid vacation, sick and holiday leave.  Other common benefit offerings include Flexible Spending Accounts, Employee Assistance Programs, Paid Personal Leave, Financial Planning Services, Wellness Programs, Subsidized Commuting and Company Stock.

Employers Health care plans remain the most common employer benefit offering as well as the highest cost.  For 2015 healthcare cost increase projections for U.S. employers have been between 3.9 percent and 6.5 percent on average.  Many employers will make plan changes in order to offset the increases.  Changes to current benefits may include moving more of the share of the cost to the employee/participant, implementing and expanding consumer-directed health plans (CDHPs), and broadening wellness incentives. 

CDHPs continue to grow in popularity and according to a couple of recent employer surveys, CDHPs as the only health benefits option is expected to increase by nearly 50 percent next year.  There are several different types of CDHPs, most commonly paired with a group plan though an employer.  All CDHPs have a personal healthcare account used to pay for medical expenses.  This approach can significantly lower costs for employers.  However, the ACA requires that companies provide a minimum 60 percent of the cost of insurance, so although these plans may involve some cost-shifting to employees, companies still pay a healthy share of the health benefit costs.

Some of the more common plan changes that employers are looking at for 2015 include:

  • Consumer tools such as price transparency tools to help employees select care providers based on cost and quality ratings.
  • Adding or expanding wellness program incentives.
  • Reducing spousal subsidies or implementing spousal surcharges for spouses who can obtain coverage through their own employer.
  • Encouraging employees to use high-performance networks such as accountable care organizations or designated centers of excellence.
  • Specialty pharmacy benefits such as requiring step therapy; before authorizing high-cost specialty pharmacy medications, less-expensive medications must be tried first.
  • Coverage for surgical interventions and FDA approved medications for the treatment of severe obesity.

Change can be challenging and demanding. 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 October 23rd, 2014 · Comments Off on 2015 EMPLOYER BENEFITS PLANNING

PAY FOR PERFORMANCE PLANS

Pay for performance plans are a pay strategy where evaluations of individual and/or organizational performance have significant influence on the amount of pay increases or bonuses given to each employee.  When properly designed, pay for performance plans can be effective in aligning employee’s behavior with company goals and therefore benefit both the employees and the business.  Proponents of pay for performance plans believe they help attract and retain better employees and motivate improved performance.  

Pay for performance plans move away from the entitlement mentality of annual increases and can motivate employees to work harder and smarter toward achievement of specific team, department and company goals and allow employees the opportunity to attain increased levels of compensation.  An effective pay for performance (P4P) plan must link pay to performance.  The percentage of an employee’s salary that is based on performance can vary greatly and is an important consideration when designing a (P4P) plan.  Pay alone is not an effective motivator and is best when combined with other performance tools such as feedback, evaluations and increased management support.

Performance evaluation serves as the foundation of a pay for performance system.  Performance Appraisals must address core competencies that have a proven impact on the business.  P4P plan performance review measures may be different for different positions. Effective performance metrics can be obtained by surveying job responsibilities of current staff in various positions.  Performance evaluations should be conducted in frequent intervals so that behaviors can be addressed and altered when they occur.  When holding P4P performance reviews that determine compensation awards, performance measures must be consistent and accurate. Effective and fair supervisors who are properly trained and a system of checks and balances to ensure fairness will be essential.

Implementing a P4P plan requires major organizational change and can have serious challenges. The advantages can be increased employee motivation and incentive toward generating revenue and improving overall company success.   Also all business units work more in tandem and therefore reduce or eliminate conflicting departmental agendas.  P4P plans are complex and may take more than a year in development to ensure effective and appropriate performance outcomes with performance appraisal processes that are strategic and objective. P4P plans require sufficient funding to ensure that sufficient rewards go to top performers. There are often payroll complexities resulting from performance measures and outcomes that vary for every role and for every department. There can also be legal issues such as ensuring compliance with overtime pay requirements under the FLSA as well as real or perceived employee bias and discrimination. Base salaries are typically lower than average and since rewards are based on company performance, there will be lean times when the rewards are minimal to none.   This however, will be balanced in good times when rewards can be as much as 40-50%.

P4P plans require a substantial investment of time, money, and effort.  If you are considering a pay for performance plan, here are some key decision points:

  • Does your organization culture support a pay for performance plan?
  • Is Management committed to changing the culture?
  • What are the goals and objectives you hope to achieve?
  • Which employee groups should be included in the P4P plan?
  • Do you want rewards to be based on individual, team and/or organizational achievements? And should awards be short term and/or long term?
  • Will rewards be lump sum or add to base salary?
  • How much pay should be contingent upon performance?
  • How will the performance pay be funded?
  • Who will make the pay decisions?
  • Who will provide input on the performance ratings?
  • Will you have sufficient training support and resources to support the P4P plan?

Change can be challenging and demanding. 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 October 15th, 2014 · Comments Off on PAY FOR PERFORMANCE PLANS

ADVANCED COMPENSATION ANALYSIS

In order to stay in line with industry trends and economic ups and downs, salary ranges should be compared to market each year. Adjustments to salary ranges may not be needed every year.  Depending upon how fast or slow the market is moving, adjustments normally are needed every 2 – 3 years.  During your annual salary range to market analysis process, make notes and keep record of any changes or movement that you see with any jobs and departments from year to year.  It is prudent to avoid making changes to your salary ranges for temporary fluctuations or anomalies.  Look for trends that are long-lasting.

In addition to an external compensation analysis to market, an analysis should be performed to identify internal pay inequities that could potentially become the focus of an OFCCP audit.  Pay inequities should include women statistically paid less than men and/or minorities statistically paid less than non-minorities. Records should consistently be kept regarding all pay decisions to determine whether there are legitimate business reasons to support the pay patterns that exist in those areas. The results of this analysis will not necessarily be used to adjust individual employee compensation.  Rather, the analysis results should be used to target areas where suspicious statistical pay patterns exist.

Since the purpose of the analysis is to anticipate areas potentially of concern to OFCCP, start the analysis with the salary grades or levels as these are most often used as the units of analysis by the OFCCP.   You will need to determine which unit or units of analysis most appropriately reflect how compensation is administered.  The objective is to find potential problem areas by targeting employees who would reasonably be expected to be paid on the same basis due to factors such as job grade, market location, and business unit.

Though the OFCCP will typically use median to perform analysis and determine pay inequities within pay grades or other units.  A thorough compensation analysis should include:

  1. Median and mean analyses (to identify areas of OFCCP concern):  In each pay grade compare the median and mean of women and men and of minorities and non-minorities
  2. t-Test analysis:   This test will determine whether the observed differences in pay within the grade levels are statistically significant.  Results of the t-statistic (t-Stat) in the t-Test are considered to be statistically significant if they are 2.00 or greater representing differences of two or more standard deviations.
  3. Regression analysis:  Any unit where the differences in pay are statistically significant a regression analysis should be performed. Factors that influence grade levels such as time in service, time in level, time in job, department, education, and performance can be incorporated into the regression.
  4. Cohort analysis:  Perform this analysis where it has been determined that the differentials are statistically significant, and where the regression analysis has not accounted for the differentials.  A primary cohort analysis would normally be completed on job titles within grades, across department designations and within departmental designations. Each of the various job titles within the database would be sorted by grade, job title, and then base salary from highest to lowest.
  5. Outlier report:  The average salary of protected class of employees is compared to the average salary of the non-protected group within a salary grade and/or job title.  When a protected employees’ average salary falls below a set percentage of the non-protected, this should be flagged for further review.  This analysis identifies protected employees who are at the lower extremes of the salary range.

At WageWatch our experienced compensation consultants can assist with your organization’s compensation needs.  We can help you ensure internal equity and compliance with regulations as well as help you structure your compensation programs to support 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 October 8th, 2014 · Comments Off on ADVANCED COMPENSATION ANALYSIS