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WAGE AND HOUR POTHOLES

Every company should perform wage and hour audits periodically; minimally once a year and twice a year if possible.  It is easier for you to catch and correct errors than to risk discovery from employees or in the event of a DOL audit.  To remain compliant with wage and hour regulations it is valuable to have the appropriate checks in place, such as up-to-date written policies and procedures, periodic training for supervisors and managers, the establishment of effective complaint mechanisms, and a regular audit process should be established.

Wage and hour violations are not only costly from the standpoint of back pay and penalties but can also lead to serious employee relations issues if employees feel they are not being fairly compensated.  Below are a few of the many wage and hour potholes of which you should beware.

Overtime Pay

Many missteps can occur regarding overtime pay, a few include:
•    Misclassifying workers as ‘exempt’ from overtime
•    Not paying ‘unapproved’ overtime
•    Failing to count all hours worked, including pre and post work activities
•    Failing to count certain activities as work time including working through a break
•    Checking emails or performing other duties during time off
•    Travel time and meeting and training attendance

Bonus or commission payments to nonexempt employees may impact overtime pay.  A bonus should be included in the calculation of the regular rate of pay for the weeks which the bonus is earned.  This will increase the overtime rate for these weeks.  The weeks for which the bonus is earned includes all weeks covered by the bonus period.  For example, if it is a quarterly bonus then all weeks in the quarter will apply.

Another consideration for computing overtime pay is when an employee works two or more jobs with different hourly rates at one or more facilities for the same employer in the same work week.  The employer must use the weighted average of the rates to compute the employee’s regular rate of pay for the purpose of calculating overtime pay.

Exemption Status / Salary Basis Test

Do you examine the duties of your salaried employees and not just their titles or how they are paid in determining whether they are exempt?  Your exempt employees must pass one of the FLSA exemption tests in order to be exempt from being paid overtime.  These exemption tests are based on actual work performed and do not test based on the job title nor what is written in the job description.

For a job to remain exempt it must pass the Salary Basis Test which ensures that improper deductions to exempt employee’s salary are not made.  There are very specific rules to follow when making any deductions to an exempt employee’s salary.  Also, a job that is exempt can lose exempt status when the duties and responsibilities change due to things such as staff reductions or organizational changes.  Therefore it is advisable to retest jobs that are impacted by these types of changes.
Meal and Rest Period Compliance

Many state wage and hour laws require employers to provide their employees with meal and/or rest breaks. These laws specify the circumstances under which such breaks must be compensated. In some cases, state laws impose different requirements than does FLSA.

A few more potholes worth mentioning:

We have mentioned just a few of the many potholes HR professionals need to be aware when classifying jobs as exempt or nonexempt, overtime pay calculation, and rest period compliance. Here are a few more to keep in mind:

  • Failing to pay employees on day of termination
  • Failure to follow rules for On-Call pay;
  • Improper use of ‘Comp Time’
  • Unlawful deductions from employee paychecks.

Be sure to consult your federal and state wage and hour resources and/or your wage and hour counsel to ensure a thorough and correct understanding of wage and hour rules.

Remaining compliant with wage and hour regulations is an important task that Human Resources and Compensation department performs for an organization.  Another important task performed is to ensure fair and competitive pay practices.  For the good of your employees, it is helpful to analyze benefit 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 hire and retain a happy, talented team.

At WageWatch, our expert consultants provide businesses, across 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-WAGE (9243) or contact us online.

PAY COMPRESSION: CAUSES AND SOLUTIONS

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.

INDEPENDENT CONTRACTOR OR EMPLOYEE?

If it walks like a duck and talks like a duck, it’s a duck.  In other words, if you are treating the ‘independent contractor’ like an employee by doing things such as providing work materials and office space, designating working hours, providing training and direction regarding how and when to perform the work, then the ‘independent contractor’ is most likely an employee.  Independent contractor is defined by the Fair Labor Standards Act, IRS regulations, and the decisions of some courts.  Many states also have specific independent contractor regulations.  The IRS and many states have adopted common law principles to define an independent contractor. These rules focus primarily on the level of control an employer has over a service or product. For independent contractors, the company can direct or control only the result of the work done, and not the means and methods in getting to the result.

The rules are not always clear-cut to determine the correct status, but generally characteristics of an Independent Contractor include:

  • The work assignment is temporary and typically for a specific project
  • The work assignment is not an integral part of the business and is not something typically done by employees.

The Independent Contractor will:

  • Supply his or her own equipment, materials and tools
  • Pay for their own expenses
  • Control the hours worked
  • Determine how and when to perform the work
  • Retain a degree of control and independence
  • Operate under a business name and has his/her own employees
  • Advertise his/her business’ services and has more than one client

Some courts and federal agencies use an “economic realities test” which looks at the dependence of the worker on the business.  If a large portion of a worker’s salary is from one specific company, this may qualify the as an employee. Other factors considered are level of skill, integral nature of the work, intent of the parties and payment of social security taxes and benefits.

Misclassification of an individual as an independent contractor may have a number of costly legal consequences such as reimbursement of all wages including overtime, taxes and penalties for federal and state income taxes, social security, Medicare and unemployment, providing employee benefits and workers compensation for any injuries.

There is no set number of factors that makes the worker an employee or an independent contractor.  Also, factors which are relevant in one situation may not be relevant in another.  The best approach is to look at the entire relationship, consider the degree or extent of the right to direct and control the work, and be sure to document all factors used in your determination process.

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.

INCENTIVE PLAN ESSENTIALS

Well-designed and well-implemented incentive plans can be an important tool for overall company success, but they also have the potential to be ineffective and even damaging if not carefully thought out.  Poorly designed incentives can have too much discretion, too much complexity or just too many measures that can undermine their power and advantage, and they can become just another way to distribute pay.

Before you even consider incentives, make sure you know the company’s strategy and the critical measurements of success.  You will need to know the specifics regarding what you want to achieve, what kinds of improvements, behaviors and outcomes do you want; why aren’t these improvements happening now and what’s preventing them from taking place; what obstacles to the outcomes will employees face, how will employees respond to and try to overcome these obstacles, and is this what you want; Do employees have the skills, experience, systems and support they need to overcome these obstacles and if not, what is lacking?

The potential incentive must be big enough to get the employees’ attention.  Incentives can create a focus on results, but you have to first get the employee’s attention.  Because the opportunity for financial rewards motivates some more than others, your incentive plan will have a greater chance of success if you carefully define what the size of the opportunity must be in order to get the majority of your employees’ focus.

The performance or results required to earn the incentive must be within the employees’ control or significant influence and should be perceived as achievable with some extra effort or stretch.  It should be easy to see and understand the relationship between one’s effort, the results of that effort and the reward.   The incented performance needs to be perceived as a desirable, stretch goal to get and keep the employee’s attention. The payout must be worth the effort required to “stretch.”  The actual payout after the final measurement is made needs to justify the attempt that was made to achieve the full objective.

Develop robust tools for performance reporting so that the employee participants always know where they stand in relation to their goals and payouts.  The payout should be forecast as the performance period proceeds in order to keep the employees’ focus on the desired outcome.   Too much subjectivity in the measurements will turn a Plan into a surprise bonus.   The sources of the measurements should be available to every participant on a regular basis and calculations for determining payouts must be simple and easy to understand.

Incentive plans will also be more valued and accepted by employees when they are a compliment to an already competitive base salary plan.  Incentive plans are not meant to remedy non-competitive pay issues.  Finally, critical factors for a plans success lie in keeping it simple and ensuring good plan communications.

Incentive plans, or any other reward vehicles, cannot drive the performance-improvement bus alone. Unless you identify and remove the barriers to performance, and create the setting in which performance improvement is possible and even likely, throwing incentive money at the problem will likely have little positive impact and could produce some very real negative consequences.

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.

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 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 but raises 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 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 market, 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.

ALIGNING COMPENSATION WITH COMPANY CULTURE

Many organizations today are focusing on their company’s culture including determining their culture, deciding what it should be, aligning with strategic goals and transitioning to the desired culture.  Culture is important because it reinforces the values of the organization, which in turn shapes team members behavior.  There are many success stories of companies with cultures that are aligned with their business goals including Google, Zappos, and Patagonia.  These companies have not only developed a culture that supports their business but has fully embraced their culture.

Organizational culture is the collective behavior of the people who are part of the organization and has important effects on the morale and motivation of the organizational members.  It includes the values, norms, systems, beliefs, attitudes, and habits of the organization and affects the interactions of the employees with each other, and with customers.  Even before you define it, you know it is there and that it has an impact on your business.  This is why it is so important to internalize the culture and understanding when company activities are in sync or not with the culture.

Once the company values and desired culture are defined, compensation can support and help drive the values and corporate culture.  It is important that the role of compensation in an organization and the compensation strategy are also defined.  For example, where does the organization want to set pay levels in comparison to the competitive market?  Perhaps the organization’s culture is strong on training and developing its employees, acknowledging their successes and offering advancement opportunities.  This, in turn, may allow the organization to set lower pay levels than what is paid in the market.  Of course, when recruiting it is important to align the compensation strategy to support the values of the culture through highlighting performance management, performance appraisals and the goal setting process for each team member.

Once values, business objectives and desired behaviors are determined then compensation plans can be put in place to support the culture.  For example, if the business objective is innovation and the desired behavior is risk-taking, then short-term incentives may be the compensation strategy.  If the goal is for a highly-trained workforce and the behavior is learning and upgrading skills, then skill or competency-based pay may be the compensation strategy.

Corporate culture is about people’s behaviors – how goals are accomplished – so to establish a culture that drives company success, organizations should link a significant component of their compensation systems to behaviors.

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.

 

AUTOMATION OF THE HOTEL EXPERIENCE IS THE FUTURE

(Note:  The following article was published in the June 7, 2017, Hotel News Now magazine; it was written by Randy Pullen, the founder and current CEO/President of WageWatch.)

Artificial intelligence and robots are here, and increasingly will be able to do much of the work in hotels. Coming to terms with that can help manage fears and uncertainty.

Hotels are on the edge of a new era driven by automation, artificial intelligence (AI) and robotics. Of course, I am not the first one to say this as there are many published articles extolling the virtues and sins of automation in the workplace and AI technology in the hotel industry.

Automation of guest messaging, mobile check-in and check-out, room assignments, motion detection, mobile key cards and facial recognition are already in service in many hotels around the world, and this is just the beginning.

A futuristic view is provided by Hideo Sawada, president of Sawada Holdings Co., which built the Henn na Hotel in Japan—Henn na is Japanese for “weird,” so this is the “Weird Hotel”—as a futuristic hotel and as a novelty add-on to an existing amusement park. The Weird Hotel is an automated limited service hotel, in operation though it has a few glitches that need to be worked out. Interestingly, it is not that highly rated by guests, but they keep coming to experience the future.

Tractica, a market intelligence firm focused on AI and robotics, forecasts global robotics market revenues to grow from $28 billion in 2015 to $151 billion a year by 2020. They predict the majority of the growth will come from “non-industrial” robots.

Tractica’s forecast does not include the future growth of AI and its impact on robotics. When you add AI to robotics what you end up with is a friendly robot that can learn and adapt to changes in the workplace. Both PricewaterhouseCoopers and McKinsey & Company have researched and written several white papers on the rapid advancement of AI and automation, and their coming impact on the workplace. In a study issued in March, PricewaterhouseCoopers estimated 38% of jobs in the U.S. would be automated by the early 2030s. For the accommodations and food service sector, they estimated that 25% of jobs would be automated.

While 25% of the jobs in the accommodations and food service sector amounts to more than 3.3 million jobs being automated, this is low when compared to other studies. A report issued by McKinsey & Company in July 2016 calculated that, of all industrial sectors, the potential for automation is the highest in accommodations and food service. According to that analysis, 73% of the activities performed by workers in accommodations and food service have the potential for automation. Essentially, up to almost half of the jobs in hotels and restaurants could be automated in the next decade and a half.

Both studies likely underestimate how rapidly AI and automation will transform the workplace and our personal lives. It is not possible to predict with accuracy the speed with which new technologies will advance. Disruptive technologies such as desktop computers and smartphones changed the workplace and our personal lives much faster than predicted when first introduced into the marketplace. I predict the assimilation of AI and automation into our lives will happen much quicker in what is now being called the Fourth Industrial Revolution.

Klaus Schwab, executive chairman of the World Economic Forum, stated in his address to the Forum in January 2016: “We stand on the brink of a technological revolution that will fundamentally alter the way we live, work and relate to one another.” He goes on to say, “This will give rise to a job market increasingly segregated into ‘low-skill/low-pay’ and ‘high-skill/high-pay’ segments, which in turn will lead to an increase in social tensions.” I believe his is a linear projection of the future, not taking into consideration how human beings rapidly adapt to a changing environment.

As we have already seen, it is not just low-skill/low-pay jobs that are impacted by AI. Wall Street is going through a transition as financial advisors are being replaced by software programs with algorithms that make reliable, profitable investment decisions faster and with more accountability than humans. Speaking of accountability (note, I am a CPA), much of what accountants do is very susceptible to automation—audits, inventory tracking, supply chain automation and tax returns, just to name a few.

Hotels have already automated or are in the process of automating repetitive tasks for personal and work activities, and the rate of adoption is accelerating at a pace that was unimaginable just a few years ago. For the hospitality industry, all levels of the business—including the front of house, back of house and administration—are susceptible to automation in total or in part. Automation and AI are and will become the driving forces in the lodging industry, as management companies and team members learn to adapt and apply the new technology to improving the guest experience at their hotels.

As automation and robots with AI become the 800-pound gorilla in the workplace, the uncertainty of what people will do if their jobs disappear is always a fear. No doubt there will be a shift in jobs; however, new conditions create new opportunities. During the first Industrial Revolution, as people moved from the farms to the cities to work in factories, there was much turmoil; but in the long-term, the outcome was good as more jobs were created than lost. People learn to adapt to change and move from the old to the new as their expectations for the future change. We only need to look to our children to see the future. Kids say the future of tech is robots.

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.

 

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 the market analysis process, make notes and keep a 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 a level, time in the 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 .

IT’S TIME TO ADJUST YOUR SALARY STRUCTURE

Maintaining a salary structure that aligns with the organization’s pay philosophy and is competitive to the labor market is imperative for any organization.  Most organizations update their salary structure every one to two years, as budget permits.  However, during the recent recession, some organizations chose not to increase their salary structures for cost containment and/or a lack of competitive pressure to do so.  For 2017, the stronger U.S. economy and increased employer confidence should continue to bolster job gains, and economists expect the previously sluggish wage growth to accelerate.  Whether or not you’ve adjusted your salary structure during the past few years, it is certainly time to do so now.

The review of your salary structure should determine whether it is still aligned with the company’s needs, pay philosophy and the labor market.  Salary structure adjustments maintain the structure’s competitiveness with the external labor market and protect an organization’s ability to compete in the market place for talented employees.  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.  Salary-structure issues are less expensive to address early on so it is best to review your salary structure annually for any needed changes.  If you wait two or three years to review and adjust, the labor market can move significantly upward in that period of time and the cost of salary range adjustments and resulting salary increases can be substantial.

Other business changes and events may warrant a review of the salary structure, such as the company’s merger or acquisition, or a competitor opening or closing a facility that impacts the company’s operations.  At times during the year hiring managers may alert you to possible salary-structure issues and their insight can indicate that specific areas of the salary structure are out of alignment.  But there may be other factors that the manager is not aware of, such as an organization’s strategic decision to set pay levels above or below the market median.

There are two basic methods for updating your salary structure and many companies will alternate the two methods, performing the ‘quick’ adjustment one year and the ‘in-depth’ adjustment the following year.

  1. The Quick Adjustment method is where you collect and consider trend or annual merit increase information, then adjust your ranges by a percentage you view as necessary to remain competitive. Trend and annual merit increase surveys are published every year and most companies rely more on average or median salary increase figures.
  2. The In-Depth Adjustment method is where you select a representative sample of benchmark jobs using currently published compensation surveys for your competitive market. Collect the competitive salary data, and then compare your salary range mid-points to the market medians or the percentile that you chose to compete with for the benchmark jobs. The results will help you determine the degree to which your ranges should be adjusted and also identify any jobs or job families whose pay is moving at a different pace than the rest of the market and may need re-graded. This methodology requires more data and time to complete.

Alternating annually between these two methods should maintain competitiveness, cost efficiency, and save time from performing the In-Depth Adjustment analysis every year.  Any resulting increases from the structure movement should be minimal and workable within the current budget year.

It is also important to remember that established pay grades, the jobs’ placement within the pay grades and well-maintained job descriptions are the nuts and bolts of the salary structure.  Companies change over time and job functions and duties can also change.  Keeping job descriptions accurate and reflecting the core duties of each position will be essential to appropriate and competitive salary ranges and pay.

Companies should consider the reassessment of their salary administration programs, along with all of their compensation plans, as a vital and ongoing part of the program’s success.  Assessing the program to ensure that it continues to meet your company’s needs is perceived as a credible and functional part of the Human Resources process, and will enhance your company’s ability to remain a competitive force in the marketplace.  When was the last time your organization reviewed its salary structure(s)?

At WageWatch, we offer accurate, up-to-date benefit survey data, market compensation data, salary reports and consulting services 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. WageWatch, Inc. is the leading compensation survey provider for the lodging and gaming industries with 6,000 properties participating in its PeerMark™ Wage Survey.  WageWatch also conducts compensation surveys for other business and industry segments including healthcare and non-profits.  For more information on our services, including market compensation data, benefits survey data, salary reports, and consulting services, please call WageWatch at 888-330-9243 or contact us online.