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BEST PRACTICES FOR BONUS COMMUNICATION AND DELIVERY

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, and 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 for 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 moral 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.

Best Practices: Balancing Internal and External Pay Equity

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

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

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

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

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

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

Managing external and internal equity is a dynamic process requiring human resources to stay vigilant on changes in market conditions and business demands. The market based pay approach to compensation gives the influence of the external market on wages precedence over internal equity. The WageWatch PeerMark ™ Salary Survey reports the most current data available which forms the basis of the external analysis. However, since both approaches have the aligned goals of attracting and retaining a talented workforce, the WageWatch Compensation Consulting Team is available to conduct internal equity audits to address employer concerns and add creditability to pay practices.

Posted in Benefits & Compensation on December 20th, 2012 · Comments Off on Best Practices: Balancing Internal and External Pay Equity

Not All Salary Surveys are Created Equal

With traditional annual salary surveys, the process of data collection starts when the survey opens. The opening is followed by a window of time that is typically two to four months, and sometimes as long as six months. This survey window depends on the industry and number of positions surveyed, for which survey participants would report their payroll data for incumbents. At the end of the collection period, the survey closes and no additional survey participation can occur until the following year when the survey cycle is completed and the survey reopens. The date the survey closes to participation is referred to as the survey’s effective date.

Once the survey closes, the wage data is manually cleaned, analyzed, and the findings formatted into a compensation benchmark report. Building the report in this manner can take an additional two to three months and for some compensation surveys up to six months. Once the report is complete, it is made available to participants and is on sale until next year’s compensation report is published.

The traditional annual compensation survey, by design, reports last year’s data. Compensation professionals know the value of using the most update-to-date market data available to conduct their benchmarking and wage analysis.  WageWatch has responded to this need with salary surveys and benefit surveys that collect and report the most current data – never last year’s data. HR directors and compensation managers know the effective date for each participant. This approach creates a survey platform that is dynamic, never closes, and reports the most current market data available.

WageWatch uses the next generation methodology based on a 365-day subscription period that allows participants to continually update data and report findings during the year. WageWatch defines the effective date as the date on which wages are internally updated in an organization’s payroll system. WageWatch’s survey platform is dynamic and not static as are traditional annual salary surveys. While Wagewatch does have a close date for its compensation surveys, which would normally be referred to as the effective date in a traditional survey, this is a soft close date.

Because our surveys are dynamic compensation surveys, we continue to accept participants’ wage data after the close date of the survey.  Users can subscribe after the soft close date, enter their data and create their own custom reports all in the same day.  WageWatch reports allow you to select an entire market to compare your in house salary data, or you can select as few as five competitors you select to compare your salary data. This report is known as the WageWatch PeerMark™ Survey report.

Posted in Survey Reports on December 5th, 2012 · Comments Off on Not All Salary Surveys are Created Equal

Budgeting for the 2013 Wage Forecast

Budgeting is a key management function that occurs every year in your organization. The budgeting process involves the systematic collection of information and data so that the financial resources needed to support an organization’s objectives can be reasonably estimated. The biggest challenge to developing a budget is trying to meet the 2013 wage forecast. Typically, senior management will forecast sales as well as the operational and capital expenses necessary to support their business goal and objectives.

In today’s marketplace, consumers are looking for companies who are innovative and offer top notch customer service. Because consumers are looking for the very best service in addition to great products, it’s important for a business to invest in its employees, as they are the most valuable resource to making the business a success. Remember, employees are the largest contributor to a business’ success in today’s marketplace.

During the budgeting process, senior management may be quick to cut your funding unless you can demonstrate how important the human resources department is to achieving the annual goals of the business using the 2013 wage forecast; and demonstrate to them how each of your department’s functions contribute to achieving the requisite ROI.

From a human capital perspective, the data needed to develop a new budget for the 2013 wage forecast include the following:

– number of employees projected for next year;

– new benefits/programs planned;

– estimated wage and benefits cost increases;

– projected turnover rate;

– actual costs incurred in the current year;

– other changes in business objectives and strategy; and

– regulatory changes that may impact employee expenses.

When developing your next budget, keep these proven budgeting tips in mind:

1.       Human Resources is Essential to Success

Make the connection between human resources and a company’s goals. Senior executives may not always see this, so make sure they understand how important the human resources department is to achieving success.

2.       Demonstrate Return on Investment

Have spreadsheets, done meticulously, to show how every dollar invested in the departments within human resources will pay out to other areas of the business. Also be sure to detail profitability.

3.       Showcase Value of Added Line Items

Show how programs, such as an employee assistance program, create value and save money in the long run.

4.       Consider Including an Unimportant Project or Program

Including a project that is unimportant that you can remove from your budget during negotiations with senior management. It will show them that you are willing to take cuts in some areas and are a team player.

5.       Get Finance Onboard

Meet with the finance department early in the budgeting process, so you have a teammate in the battle with executives. Outline the budget for them and make it clear that good human capital planning can help the business achieve its goals.

6.       Know your budget

No one can understand your budget better than you. When the budget committee asks questions, you need to know them without having to search for the answers. Be sure to utilize a 2013 wage forecast to ensure your organization is properly aligning its budget with current market value.

7.       Start Early

Every department likely will be presenting their budgets to senior management, so make sure that you aren’t the last. Plan to be heard early in the budget meetings, before discretionary funding is allocated.

Using the above tips will help you prepare a better budget for your human resources department that is in line with the 2013 wage forecast, which will benefit your organization by furthering its business objectives. WageWatch offers cost-effective salary and compensation survey reports that will help you with budget planning by providing important information such as competitive salary ranges, turnover rates for key positions and employee benefit packages. To learn more about our services, please call us at 480-237-6130 or contact us online.

Posted in Benefits & Compensation on September 12th, 2012 · Comments Off on Budgeting for the 2013 Wage Forecast