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KEY OBJECTIVES OF A COMPENSATION PROGRAM

CompCompensation 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 it 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 monthly or quarterly incentive payments, rather than annual payments.  A good incentive plan should be easily understood by the employees including 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, the 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.

PAY COMPRESSION: CAUSES AND SOLUTIONS

Pay Compress-B

Pay compression is when either a subordinate’s base pay is very close to or more than their supervisor’s or when a less tenured employee is equal to or paid more than a senior employee in the same position.  One of the most common causes of pay compression is when pay increases for current employees are low, but new employees are paid a higher salary to attract them.  This problem becomes more severe in economic downturns when pay increases are limited but it occurs even in better economic times.  Pay compression is most evident in pay systems where lower level jobs, either through union contracts or other market forces, create a situation where first-line supervisors are paid less, on an hourly basis, than their subordinates.

When the job market is weak, many organizations hire people who had already done the same work for another organization, eliminating the need for training.  Rather than hiring people with high potential and developing them for the long term, they have opted for people who can “hit the ground running,” regardless of their potential.

When salary compression and the policies that enable it are sustained over several years, it can be demoralizing and lead to widespread employee dissatisfaction.  Employers should be concerned because salary compression can transform compensation from a motivator into a de-motivator.

Salary compression may be accompanied by pay inequities which could violate equal pay regulations.  In situations where newer staff earn more than experienced staff, it could create a pay equity problem if the experienced staff are a protected class.

There are steps that can limit the detrimental effects of salary compression.  For instance, when a new job opens, organizations should try to promote someone from within, rather than hiring from the outside.  Many organizations have policies that limit how high within a range, new hires can be paid.  When new hires are brought in at higher salaries or when across the board increases are given due to market movement or minimum wage increase, have a policy that requires internal equity analysis and adjustments.

Institute a policy of transparency and calibration across units.  Disparate actions between different organizational units can create salary compression and other inequities.  Transparency can take the form of a simple scorecard showing the rates of increases and promotions in each unit.  Calibration can involve managers sharing planned compensation actions with their peer managers.  It can also include several levels of approval for any actions before they take place so that a senior leader can spot any actions that appear suspect and will cause inequities, including compression.  This tends to create a norm and, over time, leads to decisions that are more consistent and responsible.

Salary compression can be a serious problem that eventually causes an organization to lose some of its most talented employees.  Although many organizations have unintentionally allowed salary compression to take root, there are actions they can take now and in the future to keep it from reoccurring.

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.

HOW TO DETERMINE NEW HIRE SALARIES

New Hire Salaries

Without established salary ranges and salary structure, setting a salary can be like spinning the roulette wheel.  Most companies have salary offer guidelines based on competitive market data and established salary ranges for positions.  Ideally, you will have these established tools and practices in place before you have to make a salary offer.  Salary scales are a valuable tool in recruiting and hiring new employees as well as providing baseline amounts in making salary adjustments for existing employees.

There are many things to consider when determining where to set a salary for a new hire including the candidate’s experience and qualifications that are either required or needed for the job, current salaries of employees in the same or comparable worth jobs, salary range, geography, industry conventions, and company budget.  Other considerations may be bargaining agreements, prevailing wage contracts or arrangements, and the company’s compensation philosophy.

To determine accurate external wage comparisons, employers should carefully define the appropriate market and competitive set.  Defining the market too narrowly can result in wages that are higher than necessary. Conversely, defining the market too broadly may cause an organization to set wages too low to attract and retain competent employees.  Paying prevailing wages can also be considered a moral obligation.  This focus on external competitiveness enables a company to develop compensation structures and programs that are competitive with other companies in similar labor markets.  Employee perceptions of equity and inequity are equally important and should be carefully considered when a company sets compensation objectives.  Employees who perceive equitable pay treatment may be more motivated to perform better or to support a company’s goals.

Internal equity is of equal importance to external competitiveness when setting pay.  You want employees to feel they are paid fairly as compared to their co-workers as well as to adhere to regulations regarding pay discrimination.  If starting salaries are negotiated, ensure that such a practice does not have an adverse impact on women or minority workers.  Generally, jobs do not have to be identical for equal pay to be required, only substantially equal in terms of skill, effort, and job responsibility, and performed under similar working conditions.  For discriminatory purposes, pay refers to salary, overtime, bonuses, vacation and holiday pay, and all other benefits and compensation of any kind paid to employees.  Pay disparities may be allowed under a seniority system, a merit system, or a system measuring earnings by quality or quantity of production.  Hardly anyone notices when you pay “above average” compared to the outside world, but any perceived deficiency in “internal equity” can come back to bite you.

As you can see there are many factors and considerations when setting pay and it can sometimes feel like a delicate balancing act.  But doing your homework, keeping up with the external market, and addressing internal pay inequities will go a long way to simplifying the task of setting new hire salaries.  It is important to ensure that the approach taken is guided by the compensation philosophy and is applied consistently.  An effective Salary Administration Program allows a company to meet the basic objectives of compensation:  focus, attract, retain, and motivate.

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. This information is 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.

BEST PRACTICES FOR BONUS COMMUNICATION AND DELIVERY

Bonus

The primary purpose of an annual incentive or bonus plan is to drive and reward behaviors that have an impact on the operating success of the company.  When designing your incentive plan you need to have a clear measurement system for what success is in your company and then make sure the measurements are meaningful to the employees who are doing the work.  For any incentive plan to be effective it needs to be meaningful and have clarity relating both to the plan provisions and to the results needed to earn and maximize an award and the award should be attainable.  Employees need to see a link between how their job performance affects results, and the award amount needs to be sufficient enough to motivate.

Generally, two to four performance metrics are included in a bonus plan design.  The metrics are primarily financial, though quantifiable business objectives can also be used. Corporate or business unit financial metrics are used to fund the incentive pool, and individual performance measures may also be used to determine final individual payouts.  Results that are measured can be quantitative and qualitative, such as customer service quality, the number of customers served, the effectiveness of programs, etc. Often a balanced scorecard approach is used.

Employers should give careful attention not only to the design but also to the implementation and communication of incentive programs.  The most common pitfall when creating a bonus program is inadequate communication.  Bonus plan communications should be both clear and timely.  Make sure the plan is communicated prior to the beginning of the bonus period and this initial bonus communication should address the structure of the plan, decision-making criteria, fairness, measurability, and target.  Equally important are follow-up communications regarding the progress toward attainment of the goals that should happen at frequent and regular intervals throughout the bonus plan period.  You want your employees to have an on-going understanding of where they are and what they need to do to meet and/or exceed their bonus target.

When bonuses are paid or awarded, clear communications again are very important.  Managers should have individual meetings with each bonus plan recipient and clearly communicate the outcome of the incentive period.  Whatever the amount, be sure to let the recipient know that he/she is valued.  Be sure to discuss specific accomplishments and strengths that went into the bonus award.  If the employee was expecting more, be sure to emphasize the broader context of the company’s approach to bonuses.   Let each person know how the bonus was calculated.  No matter what the award is, the conversation regarding the award amount is an opportunity not only for clarity and understanding, but to thank the individual for their hard work and to hopefully improve morale and motivate for future performance.

Employees want to know they are being fairly compensated for their work and their job performance.  Bonus plans that are meaningful to your employees and aligned with the bottom line of your company can help build morale and drive behaviors that are critical to the success of the company.

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, incentive, 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 Benefits & Compensation on January 23rd, 2019 · Comments Off on BEST PRACTICES FOR BONUS COMMUNICATION AND DELIVERY

STRATEGIC ISSUES AND THE PAY MODEL

Strategic Pay

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 the 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 critical to ensuring your compensation philosophy is supporting business objectives.  Strategic objectives will include significant challenges and priorities now and over the next two to five 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 the 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 the desired outcome.  If quality, experience, and a sophisticated skill set are a strategic advantage to an organization, then it will not be successful in 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 .

BENEFITS & PERKS–ATTRACTING & RETAINING TOP TALENT

Perks

In today’s tight job market, many employers realize that they need to take a closer look at their benefits package in an effort to attract and retain employees.  How often have you found a qualified candidate that you hope to hire only to learn that they decide to go with another position?  Most likely, the candidate has found another job in which the benefits offered by the competition were more attractive.

When reviewing the development of benefits and perks for your company, it is valuable to understand the differences.  Benefits are a form of non-wage compensation that supplement salary (e.g., health insurance). Perks are a form of non-wage compensation (e.g., work from home Fridays), but unlike benefits, are more loosely defined and vary greatly.

Glassdoor indicates that 57% of job seekers list benefits and perks among the chief determinants when evaluating jobs.  Benefits and perks impact recruiting efforts as they help to get prospective talent interested in a company and through the door.

The primary benefits and perks that prospective job seekers value most when considering a new position include (listed in order of importance):

  • Better health, dental, and vision insurance
  • More flexible hours
  • More vacation time
  • Work from home options
  • Retirement benefits; pension plan, 401K

Although there are some new, innovative benefits and perks being offered such as free-snacks or nap pods—the top benefits/perks valued by many employees are those that improve their work/life balance.

Some innovative, non-traditional benefits/perks offered by large companies and tech-based companies include:

  • Unlimited vacation
  • Student loan assistance
  • Free gym membership
  • Free day care services
  • Free fitness or yoga classes offered on-site
  • Catered breakfast and/or lunch
  • Company-wide retreats
  • Paid volunteer days
  • Paid parental leave for moms and dads (16+ weeks)
  • Dedicated game rooms
  • Nap rooms

Although the benefits and perks offered can help get prospective talent through the door of your organization, once hired, it is the culture, values, and career opportunities that are the leading factors in employee satisfaction.  Employee interests vary depending on company size, industry and demographics.  To find the benefits package that best fits your business, it’s important to survey employees about what they value most.

WageWatch offers accurate, up-to-date HR metrics, 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 a custom-built 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 Benefits & Compensation on October 31st, 2018 · Comments Off on BENEFITS & PERKS–ATTRACTING & RETAINING TOP TALENT

WHAT’S NEXT…JOINT EMPLOYMENT REDEFINED?

Joint EmploymentHave you noticed the flip-flop on Joint Employer Standards from the National Labor Relations Board (NLRB)?  Currently, the standards are in flux.  In 2015, the definition of a joint employer was modified and expanded based on the Browning-Ferris Industries case.  This case changed over 30 years of precedent that had required “direct” and “immediate” control over an employee’s working conditions to “indirect” and “potential” control as the new definition of joint employment.

Under the Browning-Ferris standard, even if two entities never exercised joint control over the essential terms and conditions of employment, and any joint control was not direct and immediate, there could still be joint employers based on: (1) the existence of reserved joint control, (2) indirect control, or (3) control that was limited and routine.  Browning-Ferris was considered controversial and criticized by many employers and business groups.

In December 2017, in an attempt to rein in what was perceived as a broad and vague standard, the NLRB re-established the pre-Browning-Ferris standard in the Hy-Brand Industrial Contractors case which returned the former joint employer test requiring “direct” and “immediate” control.

To the dismay of many in the business community, in February 2018, due to an alleged conflict of interest, the NLRB vacated the Hy-Brand case, leaving Browning-Ferris as the law of the land once again.  Prior to Browning-Ferris, the NLRB relied on decades of legal precedent to set the joint employment standard.

In May 2018, the NLRB announced its intention to clarify the joint employer standard by issuing a new rule to reinstate the pre-Browning-Ferris joint employer standard.  On September 14, 2018, the NLRB published a Notice of Proposed Rulemaking (NPRM) in the Federal Register regarding its joint-employment standard (allowing 60 days for public comments).  The proposed rule reflects a return to the previously longstanding standard that an employer may be found to be a joint-employer when the following condition exists:

    • A joint-employer of another employer’s employees exists only if it possesses AND exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine. 

 The 60-day period for public comments continues through November 13.  After the NLRB reviews the public comments and replies, it will issue a final rule regarding the joint employer standard.  If issued without substantial changes, this rule will provide employers with a more clear and consistent standard and reduce the likelihood of an employer inadvertently becoming a joint employer.

WageWatch offers accurate, up-to-date HR metrics, 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.

WHAT SHOULD AN EMPLOYER DO WHEN AN OTHERWISE QUALIFIED APPLICANT FAILS A DRUG TEST WHILE USING MARIJUANA FOR MEDICAL PURPOSES?

First and foremost, CHECK STATE LAW!  This remains a troubling issue for employers in states that have enacted medical marijuana laws and/or laws allowing for recreational marijuana laws.  We have written on this perplexing issue in the past focusing on the Colorado Supreme Court’s decision which held that state’s protection of employees who are engaging in “lawful activities” did not shield an employee using state-law protected medical marijuana from termination.

Last week a Connecticut federal court judge issued a decision for employers concerning Connecticut’s Palliative Use of Marijuana Act (PUMA). The federal judge granted summary judgment in the employee’s favor in connection with her PUMA claim.  The court concluded that the Company violated PUMA by rescinding the job offer based on a positive pre-employment drug test because was a “qualifying patient” under Connecticut law.

In so doing, the court rejected the Company’s argument that its zero-tolerance policy complied with the Drug-Free Workplace Act (DFWA), which requires federal contractors to make a “good faith effort” to maintain a drug-free workplace.  The federal judge concluded that the DFWA does not prohibit federal contractors from employing someone who uses medical marijuana outside of the workplace.  The emphasized that PUMA does nothing to limit an employer’s ability to prohibit the use of intoxicating substances during work hours, but it does protect a “qualifying patient” from an adverse employment action for using marijuana “outside of work hours and in the absence of any influence during work hours.”

PLEASE NOTE: this is an area of the law that is not yet settled.  And that there will be different results in each state as state laws on marijuana use vary greatly—-and judicial interpretations of these laws will also greatly vary.  Before proceeding to enforce your drug-testing policy against individuals purportedly using marijuana for medicinal purposes, you are well-advised to review all applicable state laws.  Of course, feel free to contact PSB if you have any questions on this at www.psb-attorneys.com.

Change can be challenging and demanding.  At WageWatch our compensation consultants can assist with your organization’s compensation needs and help ensure your wages and salaries are supporting your company’s business strategy and objectives.  In addition to our PeerMark Salary Survey for over 100 local lodging markets in the U.S. and Canada, we offer a National Benchmark Salary Survey.  With over 9,000 hotels and 200 casinos in our database, WageWatch’s hotel and gaming salary surveys are the most comprehensive surveys available to Human Resource professionals. For more information on our services, including consulting, salary surveys, benefit surveys, and custom compensation reports, please call WageWatch at 888-330-9243 or contact us online.

SALARY STRUCTURES: WHAT ARE THEY GOOD FOR?

Established salary structures aren’t mandatory.  There is no law that requires them, but they serve many useful purposes.  Having salary ranges in place can ensure that salary decisions, from new hires to promotions, are made with objective and consistent rules and parameters.  They provide at least a first line of defense against salary discrimination, intentional or otherwise, by ensuring that employees performing the same job are granted the same salary opportunity.  And, formal salary ranges provide you with a tool for proactively managing and budgeting your salary dollars.

Salary structures help ensure that pay levels for groups of jobs are competitive externally and equitable internally.  A well-designed salary structure allows management to reward performance and skills development and control overall base salary cost by providing a cap on the range paid.

A salary structure enables employers to pay employees in a given position, consistently, for the work they do.  Salary ranges also offer flexibility enabling a company to pay higher in the range for an employee based on a greater level of education, experience or performance.  In the same way, it can potentially save on labor costs when hiring employees with limited backgrounds.

Having well documented and communicated salary ranges can minimize employees’ pay equity concerns and grievances.

A well-designed salary structure will help organizations:

  • Attract and retain suitable, qualified, and experienced employees
  • Build high morale with internal equity
  • Create more satisfied employees and thus reduce turnover
  • Minimize favoritism and bias
  • Provide a structure for career progression
  • Serve as a sound basis for collective bargaining and employee relations management

If the salary structure gets out of sync with the overall labor market, a company may find itself paying employees too much and needlessly increasing operating costs, or paying employees too little and having difficulty attracting and retaining talent.

A study of the current labor market will provide new information to determine whether the organization’s pay structure, policies and practices, job classifications and job titles are appropriate or needing adjustment.

WageWatch offers accurate, up-to-date HR metrics, 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.

MERIT BUDGET ALLOCATION

A primary goal of any compensation program is to motivate employees to perform at their best.  Most organizations have to pay for performance at least in the form of a merit pay system.  An accurate, reliable, and credible performance-appraisal program that is aligned with company goals, core values, and industry best practices is the foundation of a successful merit pay program.  Performance measures should be tailored specifically for the organization and its jobs with clear outcomes that minimize bias and misinterpretation.  Consistency, manager training, effective communications, and a periodic review are also essential for success.

The merit pay budget has two aspects to it:  1) determining the size of the budget and 2) allocating the budget to organizational units and its employees.  Determining the size of the budget will be based on competitive trends, the organization’s financial situation and other factors that may impact pay such as minimum wage and cost of living changes.  For the past several years merit budgets have been small and therefore it has been a challenge to adequately reward top performers as well as those that are rated ‘Good’ and ‘Average’.  Employees with performance ratings of ‘Good’ and ‘Average’ can be the largest percentage of employees and therefore the backbone of the workforce.  These employees should not be overlooked as a raise for these employees often do not keep up with the cost of living.  Also the differentials between performance levels may not be large enough to motivate and retain employees.  These factors reduce the motivational potential of the merit pay program.

Using a merit increase matrix may help to maintain internal equity but may not properly reward top performers.  You want your reviewing managers to be engaged in the merit award process and to give appropriate thought and consideration to their pay decisions.  A certain amount of guidance and training is needed but the merit matrix can be too structured and rigid as well as make it too easy for reviewing managers to simply follow the formula rather than spend the time and effort for a thorough review.  Greater rewards for top performers and greater deviation of awards between good and average performers can be accomplished by providing zero increases to employees whose performance falls below average.  Providing broad increase guidelines in lieu of a matrix to your reviewing managers using factors such as performance rating, time in the position, and position in salary range can eliminate the rigidity of the merit matrix and drive a more thoughtful approach to the merit award process.  Once tentative award amounts are determined, reviewing managers should perform an analysis of the awards looking at the whole department and at each individual award using these and other factors as well as any unique or special circumstances.

Annual pay increases not only help keep employees’ pay at the market level, providing awards that are accurately linked to performance are important in retaining employees, especially your best ones.  Compensation frequently emerges as a driver of retention, and when pay increases aren’t provided regularly and fairly, it will negatively impact job satisfaction.

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.