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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

Employee Health Benefit Trends to Watch for in 2013

Employee health benefits will continue to be an important issue to both employers and employees in 2013. With the election behind us, employers are looking to the future and working to determine the impact that recent healthcare reform will have on their business. In 2013 businesses will work to establish a balance between working within the regulations of the Patient Protection and Affordable Care Act (PPACA) while attempting to keep the costs of employee health benefits down.

Even with the rising costs of healthcare, many employers remain committed to providing their employees with attractive and comprehensive healthcare benefits. After reviewing benefits survey data, along with the healthcare coverage trends of 2012, the following predictions can be made for 2013:

Rising Costs

As healthcare costs have risen over the years, employers have been faced with the constant struggle of providing adequate healthcare benefits while keeping within their set budgets. According to benefits survey data, employers are budgeting with the expectation that healthcare costs will rise about 7 percent in 2013. To offset this rise in costs, many employers will raise insurance premiums by an average of 5 percent.

New Healthcare Plan Options

The majority of employers in 2013 will offer high deductible plans as a healthcare coverage option. Many of these plans will include a health savings account, allowing employees to invest money free of taxes to pay for healthcare. These plans are a significantly less expensive option for employers, leading many of them to offer incentives with the plans. Approximately 43 percent of businesses surveyed plan to offer a $500 contribution into each employee’s health savings account for selecting a high deductible health plan.

Increase in Wellness Programs

Many businesses are encouraging employees to be proactive in improving their own health. Utilizing tools like wellness programs and incentives, employees are rewarded for improving health habits to avoid costly, preventable conditions, such as diabetes, obesity and cardiovascular disease. According to benefits survey data, 61 percent of employers cited poor health habits as the largest challenge to providing affordable healthcare benefits. To counter this problem, 48 percent of employees plan on using incentives to increase participation in preventative health care programs.

These predictions, based on benefits survey data, will help assist businesses to develop the budget and plan for the changing costs of healthcare benefits for the 2013 year. For assistance determining future employee compensation, WageWatch offers cost-effective reports, including salary, wages and benefits survey data. To learn more about benefits survey data and other services provided by WageWatch, please call 480-237-6130 or contact us online.

 

*Data provided by the National Business Group on Health Employer Survey on Purchasing Value in Health Care.

Posted in Benefits & Compensation on November 28th, 2012 · Comments Off on Employee Health Benefit Trends to Watch for in 2013

HR Outsourcing: The Pros and Cons

With the state of the current economic climate, businesses have been forced to make crucial budget cuts. Human resources, as well as other departments, have experienced a decrease in the number of staff members or have been eliminated altogether. With far fewer resources, the remaining staff members are left with the responsibility to manage the workload previously done by many more employees.

The Human Resource (HR) department is at the heart of every organization. It is essential that the HR Department be run efficiently and effectively, even with limited resources.  To ensure that the HR department tasks are carried out, many business owners have begun to outsource some or all of the departments function to provide HR services and data, including compensation surveys.

When considering outsourcing the human resources department, consider the following advantages and disadvantages:

Advantages

Savings: Businesses will pay far less for outsourced services than they would on a dedicated employee fulfilling the HR role. Many of the companies offering HR services only charge for the services that the business uses. For example, a business owner will accumulate savings by paying for recruiting services on a case by case basis rather than providing a full-time recruiter’s salary.

Efficiency: Upon outsourcing the HR tasks, businesses are able to use their limited resources to focus on building and expanding internal operations. The cost savings allow businesses to allocate funds to other departments, increasing marketplace competitiveness. Additionally, providing the HR department with wage, salary and compensation surveys will increase the effectiveness of operational decision making.

Process: HR outsourcing companies offer a great deal of expertise on the HR industry and are able to implement processes that are efficient while falling within all legal regulations. After thoroughly analyzing a business and its structure, outsourcing companies are able to recommend standardized processes, such as training, hiring and retaining employees.

Disadvantages

Expertise: An internal HR department is a valuable asset for businesses. Without one, there is no central hub of expertise with information on employee training and business operation processes. Each business operates uniquely, so it may be difficult for an outside company to understand how alterations in processes can affect employees.

Cultural: Without an internal HR department, employees lose the personal connection of working directly with the team that sets corporate policies, provides training, and manages payroll. This may lead to feelings of resentment that the outside HR team does not have the employees best interest at heart. Employees appreciate the sense of security in having an in-house HR team, who are there to serve them, a feeling that is difficult to recreate when outsourcing HR functions.

In order to achieve operational effectiveness, businesses must provide HR departments, outsourced or internal, with the proper resources, such as wage or compensation surveys, to make decisions that are beneficial to the organization and its employees. WageWatch provides wage, salary and compensation surveys and reports, with data from over 108 markets. With this information, HR departments are able to compare data across national, regional, state, city or property. To learn more about compensation surveys, please call 480-237-6130 or contact us online.

WageWatch Banquet Servers Compensation Survey

Banquet servers typically perform duties including hosting, waiting and bussing tables at events including weddings, conferences and fundraisers. Based on WageWatch’s 2012 Compensation Survey for over 5,000 hotels, banquet servers are the top non-exempt earners in terms of tips when compared to all other tipped positions in the industry. It appears that while banquet servers are well compensated; many hotels experience a very high turnover rate. At WageWatch, we questioned why this pattern was occurring, so we conducted a short compensation survey in order to gain a better understanding of the market for banquet servers and to determine the reasons behind this apparent anomaly.

The first question in this survey reads as follows:

If you compensate your Banquet Servers based on a set hourly rate of pay only (with no Gratuity Pool participation), do you pay your AM and PM banquet servers different rates of pay such as a shift differential?

The responses we received from 229 survey participants we’re as follow:

– 93.9% of respondents said they pay their banquet servers a set hourly rate, whether the shift was an AM shift or a PM shift.

– 6.1% of respondents said they do pay their banquet servers a shift differential. The average of shift differential was $1.53 per hour.

The second question in the survey reads as follows:

Does your Banquet Server compensation process include compensation out of a gratuity pool?

The following responses were received:

– About 2/3 of respondents stated that their banquet servers receive tips from a gratuity pool.

– Of the properties with a gratuity pool, on average, 32% is split amongst the banquet servers.

However, the average does not take into account the dispersion in the data. The gratuity pools ranged from 10% to a 100% split with a median of 15%.  With the median less than half the average, banquet servers appear to have opportunities to improve their potential earnings by changing properties.   In order to further understand the reasons for the high turnover rate, we have designed and will be distributing a follow-up compensation survey to develop a more thorough analysis of the banquet server turnover rates. Click here for the results.

WageWatch can help your business with cost-effective compensation surveys that will help you with hiring and budget planning by providing important information such as salary ranges, turnover rates and employee benefit packages. To learn more about our compensation surveys and other services, please call 480-237-6130 or contact us online.

Posted in Compensation Surveys on September 27th, 2012 · Comments Off on WageWatch Banquet Servers Compensation Survey