Trends & Issues | Lappley & Associates

2022 Salary Increase Budgets

Will salary increase budgets rise or fall in 2022? Although employment has not yet returned to pre-pandemic levels, most executives are optimistic the economic recovery will continue, a sentiment that paves the way for higher wages.

In fact, a recent poll by Chief Executive shows CEOs anticipate both revenue growth (79%) and profit growth (68%) over the next 12 months despite setbacks that may have occurred for some in 2021. At the same time, there is growing uncertainty on many fronts. Looking ahead, the C-Suite is concerned about labor costs and shortages (63%); the overall economy (50%); workplace safety and ongoing Covid mandates and restrictions (48%); and supply chain issues (40%).

Against this backdrop, companies are facing one of the tightest labor markets in memory as they determine how to adjust 2022 salary increase budgets to attract and retain top talent.

To get a sense of what management teams are planning for salaries and wages in 2022, we have gathered compensation survey information from a variety of consulting sources including:

WorldatWork

WorldatWork’s 2021-2022 Salary Budget Survey reported that salary increase budgets rose to 3.0% in 2021. In addition, zero increase budgets dropped by half in most employee groups from 2020 levels, which were ten times higher than in 2019.

Not surprisingly, survey participants salary increase budgets this year varied across industries as the pandemic had varying impacts. For example, Mining, Quarrying, and Oil and Gas, saw salary increase budgets falling from 3.1% last year to 2.3% after rising for several years. On the other hand, Educational Services saw a large increase from 1.5% in 2020 to 2.5% in 2021. Salary increases also varied between companies in the same industry.

The survey projects median salary increase budgets will be 3.0% in 2022, while average 2022 salary budgets will be 3.3%. Survey participants predicted no significant differences between nonexempt employees, exempt employees, or executives.

According to survey participants and consistent with previous years, salary increase budgets continue to be greater in smaller companies, resulting in the average being higher than the median.

Willis Watson Wyatt

According to the Willis Watson Wyatt General Industry Salary Budget Survey, respondents report only 3.0% intend to give no raises in 2022. This is a decrease from 8.0% earlier in 2021. The survey reports projected salary increases of 3.0% for executives, management, professional, and support staff for 2022. This is up from the 2.7% average increases companies gave their staff in 2021. Production and manual labor employees are slated for 2.8% increases, a slight rise from the 2.5% paid this year.

High-tech and pharmaceutical companies project the largest salary budget increases at 3.1%. Next are health care, media, and financial services organizations with 3.0%. Oil and gas companies, leisure and hospitality companies are budgeting salary increases of 2.4%. Retail organizations predict increases of 2.9% next year.

The survey found that top performers received larger pay increases than average-rated employees. Those receiving the highest performance rating received an average increase of 4.5%, 73% higher than the 2.6% granted to average evaluated performers. Note that Lappley & Associates has long advocated that top performers be recognized with increases double those of average rated performers.

Conference Board

According to the Conference Board, median total 2021 salary budget increases for 2021 are 3.0%, on par with the previous 10 years. The projections for 2022 are also at 3.0% and are expected to hold steady across employment categories.

National Association of Manufacturers (NAM)

In a survey taken in August of manufacturers conducted by the National Association of Manufacturers (NAM), participants said they plan to increase wages and full-time employment by 3.5% and 3.8%, respectively, in the next 12 months. NAM reports that manufacturers are continuing to invest in workers and capital at paces that indicate an extremely positive industry outlook for 2022.

Like other industries, manufacturers are facing workforce shortages along with supply chain disruptions, rising cost pressures, and increasing coronavirus cases.

Our Thoughts

It is interesting to note that salary budget increases for next year are consistent by survey source, although they seem to be getting larger as the year progresses. Furthermore, the issues of retention, upskilling and recruiting remain top-of-mind with management executives as they consider plans for next year. With that in mind, here are our predictions:

First, small to medium-sized companies (SME) may have a competitive hiring advantage with more flexibility, the absence of vaccine mandates, and a smaller regulatory burden. We predict they will adopt salary increase budgets of 3.3% to 4.0% in 2022 while large organizations will be closer to 3.0%. The difference between SME and large organization approaches reflects a pattern over the past several years. Further, more recent surveys are pushing expected increases higher.

Second, despite salary budget increases in 2022 exceeding recent years, there will be growing pressure from employees for larger pay increases. This will add to increased turnover risk as employees seek higher compensation. Although it may be temporary, inflation is real and having an impact on American households. For example, federal sources report wholesale prices climbed 8.3% from August 2020 to August 2021, while retail prices rose 5.3% over the same period. In addition, Price Waterhouse Cooper’s Health Research Institute is projecting a 6.5% medical cost trend in 2022, slightly lower than the 7.0% medical cost trend in 2021 and slightly higher than it was between 2016 and 2020.

Third, companies should examine their pay competitiveness levels using salary surveys that robustly test business type, along with competitors for people based on geography and other factors. Then evaluate how close your organization can come to meeting compensation strategy competitiveness goals based on available funding. At Lappley & Associates we have access to a large number of surveys making such an evaluation possible.

Let us Connect

If you liked this newsletter, please pass it along to colleagues who would be interested. And reach out if you would like to discuss further at nlappley@lappley.com or (847) 921-2812.

September 29, 2021/0 Comments/by Neil Lappley

Compensation strategy

The Future of Pay

The pandemic and resulting economic fallout impacted lives and businesses like no other event for a generation. In response, employers adapted with agility and speed. Remote work became the norm. Companies embraced digital technologies to enhance employee safety and collaboration. However, as companies have repositioned in the marketplace, compensation and rewards programs have not kept pace.

There is a profound need for companies to reshape their approach to rewards. A successful rewards scheme will encourage the right behaviors, driving performance and focusing employees on a common purpose to deliver a business’s mission. Here are the trends most likely to impact restructuring of company pay and rewards:

1) Aligning Purpose with Pay – Based on the idea that business leaders should serve communities along with their other stakeholders, compensation is now more closely tied to achieving a successful strategy founded in purpose. In other words, companies are striving to make a positive societal impact through environmental or social activities ─ both internal and external ─ that build a more equitable and sustainable world.

Company purpose is established by determining the impact that can be made in the markets served, a vision that is aligned with brand, business model, growth strategy, and stakeholder interests. Purpose comes to life as Environmental and Social Governance (ESG) or Corporate Social Responsibility (CSR) programs. Both activities tend to be employed by public companies, however, more private companies are following their lead. When structured well, the return-on-investment includes a better company reputation and more committed and engaged employees.

Investors, employees, and other audiences want accountability and transparency with these programs, so compensation strategy and design should include:

Multiple metrics or a scorecard approach to gauge accomplishment of company purpose in performance management and incentives programs.
Expanded use of long-term incentives since purpose-based initiatives at organizations emphasize longer-term over short-term goal achievement.
Eligibility for incentive participation and opportunity for more employees so they have a stake in the outcome.
Performance management systems incorporating more frequent feedback to employees and emphasizing employee development.

2) Skills-Based Training – Skills required for the jobs available now may be different than pre-pandemic opportunities, in part due to the accelerated adoption of digital technology. In addition, worker shortages and the drive to reduce costs have some employers leaning on automated processes and artificial intelligence (AI) to perform work formerly done with human labor. This shifts the focus to more professional, technology and “soft” skills, such as critical thinking and innovation. To retain valued employees and attract new hires from a limited talent pool, more employers are investing in reskilling and upskilling programs. Moreover, investing in people leads to greater job satisfaction and engagement.

Research shows that reskilling including training costs, time off work, and administration costs an average of $24,800 per worker. The costs of not reskilling, however, including recruiting, onboarding and severances costs likely outweigh retraining.

Therefore, rewards must be redesigned to attract future-leading skills, whether those skills are developed by updating current employees or through hiring. Rewards should be designed so that they do not over value old skills but reward future business model needs.

3) Diversity, Equity, and Inclusion (DEI) – Many companies delayed implementation of DEI initiatives during the pandemic as hiring was curtailed, limited money was available, and remote working made addressing inclusion difficult. As a result, employees continue to believe that there is compensation inequity.

Because pay equity perceptions have such a strong influence on retention, it is imperative that organizations be more transparent with employees about pay gaps and what they are doing to close them. Be sure to include DEI metrics in compensation and incentive plans to help promote progress on these initiatives.

4) Remote Working – Most employers expect to keep some portion of their workforce remote as pandemic restrictions ease. What started as a safety practice has become an important benefit to employees who value the flexibility working from home offers.

In addition, since remote work can be done from anywhere, employers can tap into a wider talent pool. Depending on where employees work, deciding what to pay them is more challenging. If they are in a lower cost-of-living area, should they be paid less? Or should all competitive pay be based on cost of labor? Some companies are using a national median as a starting point, then layering in geographic pay differentials and occupational data. How deep the analysis becomes is based on the level of competitiveness desired.

5) Benefits & Other Rewards – As workers’ needs evolve, the value of benefits to all employees has become increasingly apparent, especially those that center around flexibility, health care and wellness. For example, employers are revising their benefit strategies to better accommodate caregiving needs by letting employees work outside the historic 9 to 5 workday and subsidizing childcare during working hours.

To demonstrate their commitment to employee health and well-being, many companies are offering wellness programs. These include subsidized gym memberships, EAP resources, telehealth options, and meditation apps to help workers manage stress. Wellness is seen to be a significant future component of employee benefits.

Special bonuses are also gaining ground in 2021. These are used to recognize and reward employees for meeting challenges during a difficult business cycle, rewarding them for the completion of an important project, or to retain top talent. And with hiring shortages in some industries, sign-on and referral bonuses are increasing.

Summary

Inflation pressures, supply chain issues, and a virus that is still unpredictable are all weighing on employers, making it difficult to predict what will happen with compensation and rewards through the end of the year. Still, companies can take several actions to keep their compensation strategies on course.

First, stay on top of labor markets and increase hourly wages periodically to meet competitive markets. Next, review pay of first- and second-level supervisors to maintain parity with hourly workers. Finally, track salaries for professional and management positions so they are competitive ─ particularly top performers, high-demand positions, and high-potential employees. Businesses learned to be flexible and resilient during the last 15 months, lessons learned that can be applied to the future of pay.

Contact Us

If you would like to discuss the future of pay and rewards, please contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com. A discussion carries no charges.

August 3, 2021/0 Comments/by Neil Lappley

Compensation strategy

Winning the War for Talent

The talent war is raging, and CEOs want their human resource heads (CHROs) to spend more time finding, retaining, and upskilling great employees. That is according to a recent poll by Chief Executive and the Society for Human Resource Management (SHRM).

Many companies are gearing up for significant growth as the pandemic eases, but the speed of the economic recovery has unleashed a talent shortage. Few organizations have all the talent they currently need. Further, poaching may rob companies of talent needed to grow. In fact, the more successful a company is, the more likely it is to become a recruiting target.

To acquire and retain talent, organizations must be preemptive by developing a competitive and fair compensation program. Worker shortages, the improving economy, and inflation are putting increased pressure on wages and salaries. Making sure compensation comparisons are up to date is essential (and more challenging). Survey data may be less reliable in this rapidly growing economy. To update the comparison, we also recommend getting a pulse on the market through colleagues as we continually assess through out contacts.

With an equitable compensation plan as a starting point, HR teams hiring and retention initiatives will go further.

HIRING TOP TALENT

The U.S. Labor Department reported more than 7.5 million unfilled job openings in June 2021, a slight improvement over March of this year. Nonetheless, employers continue to struggle with hiring and finding employees whose skills match their hiring needs. To close the gap, we advise organizations to:

1) Shift the hiring focus from a work history to a skills or competency-based approach. This will open a new pool of potential workers and demonstrate that there is no best route to a role. For example, significant numbers of food service employees have lost their jobs. Many have the skills to be successful in customer service roles, currently a high-demand function.

Refocusing on skills will mean recasting job descriptions to skills needed versus work history requirements. Managers will need to change their mindsets and expand training programs to prepare employees for new roles. And an adapted evaluation process may be needed as the newly hired learn on the job.

2) Do not overlook internal candidates. Emphasis on skills is the future of training and development. Companies are realizing the need to reskill or upskill their employees. Exposing employees to different areas of the company will help to identify business areas that they are interested in. Start by including them in cross-functional teams and meetings. Most important, encourage employees to keep to a continuous learning cycle.

3) Get creative to recruit women back to the workforce. In March of this year, almost 1.5 million fewer mothers of school age children were working compared to February 2020. As schools return to in-person instruction, more women will be available to fill recruiting needs.

However, some creativity is required. Consider flexibility to address childcare responsibilities, work-from-home arrangements, access to EAP or mental health programs, and reintegration training for women who have been off long-term.

RETAINING KEY EMPLOYEES

Surveys show that anywhere from a quarter to more than half of employees are planning to look for a new job post-pandemic. To avoid losing key employees, companies need to offer competitive compensation. After all, these employees are among your most valuable assets. Losing them is expensive and replacing them may not be possible.

There are three employee groups that bear special consideration: top performers, those in positions of high demand, and high-potential employees. About 10% to 15% of salaried employees are top performers. Look at employees that performed consistently for at least two years; last year can be considered an anomaly.

High-demand positions are those that came into prominence last year. An example is supply chain workers dealing with product shortages, shipping delays and general vendor delivery uncertainty. These jobs are netting higher wages and salaries as demand outpaces supply. Employers may have no choice but to invest more heavily in these positions.

The final group is high-potential employees who have been identified to receive special developmental opportunities. These are your future leaders. Continue to invest in cross-functional training and educational experiences.

SUMMARY

Moving forward, businesses relying on a pre-pandemic pay equity analysis must adjust to changing market conditions. Some will be forced to wait until profits return to fund pay equity adjustments. A thoughtful analysis will help companies get from here to there.

HR hiring and retention programs will be challenged for months to come. However, there are compensation planning steps employers can take now to improve program outcomes and make the most of the current job market.

LET’S CONNECT

To discuss how to recruit and retain key employees, please contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com.

June 23, 2021/0 Comments/by Neil Lappley

Compensation strategy

Post-Pandemic Compensation Considerations

How will your organization meet employee demands in a post-pandemic economy? Despite an expanding jobs market and growing optimism about the recovery, employers are finding that in many ways employees are in the driver’s seat as competition for workers tightens. This seeming paradox comes as unemployment levels remain high.

Agile companies are responding with compensation and benefits programs that address employees’ shifting priorities. Yes, making a fair and competitive wage or salary is important. But so is workplace flexibility and a focus on employee health, wealth, and well-being.

Here are four of the most relevant post-pandemic workforce challenges and opportunities to consider when revising your compensation plan in 2021:

1) Hiring & Retaining Key Employees

The biggest human resource challenge facing companies as the economy recovers is hiring and retaining employees. In the latest jobs report for March 2021, openings in the U.S. rose to 8.123 million, the highest on record. This is 5 million above pre-pandemic levels, based on data tracked by the Bureau of Labor Statistics.

While many of these job opportunities are in industries virtually shut down during the pandemic, other sectors including manufacturing are expanding. Unlike prior recessions, the laws of supply and demand are not the only trends impacting hiring and employee turnover. Concerns about workplace safety, issues with childcare, and other factors such as generous unemployment benefits may be keeping some workers on the sidelines.

Still, paying a competitive salary is key to bringing on new talent and rewarding key employees, especially your top performers and those in positions in high demand.

Finding real-time wage and salary information will help you determine how competitive your current compensation plan is and whether adjustments should be made.

2) Targeting Pay Equity

Organizations are targeting pay equity to ensure employees doing similar work under similar working conditions are paid fairly. Employees are demanding it; laws require it; and employers must address it to recruit and retain top talent.

The current federal administration will likely apply more stringent enforcement of equal pay regulations. Already employers who run afoul of the Equal Pay Act (EPA) can face penalties from the Equal Employment Opportunity Commission (EEOC). However, the reputation damage can be much worse, affecting the ability to attract and retain talent.

3) Enhancing Benefit Programs

As workers’ needs evolved during the pandemic, the value of benefits to all employees has become increasingly apparent.

Flexible work arrangements have been evolving and have been accelerated during the pandemic as employees had to care for children being schooled at home or for other family members. Accommodating flexible employment arrangements has become central to being an employer of choice. This means working outside of the historic 8 am to 5 pm workday and balancing employer and employee needs.

Some employees are subsidizing childcare, recognizing that difficulties finding reliable care during working hours may affect productivity. Others provide care on-site.

In any case, taking a fresh look at benefit strategies goes together with pay to support a competitive total compensation package.

4) Compensating Remote Work

During the pandemic, most organizations implemented employee work-from-home programs. Many employees would prefer to continue working remotely, at least part of the time. In exchange for reduced commuting time and more flexibility, many found these new arrangements to be more productive and family friendly.

Employers also found remote work arrangements helped them save on real estate and other overhead, such as travel and meeting expenses. Making these types of arrangements permanent or long-term will require changes to management style to integrate remote and in-office workers.

In addition, companies who can hire from any location must decide how they will pay their remote workforce. On the one hand this is a desirable workplace perk, while on the other salaries vary drastically depending on competitive practice cost of living and other factors from region to region.

We believe that most companies will approach the issue by referencing cost of labor and not cost of living data. Whether they use specific location or broad geographic information to determine a compensation structure has yet to be determined. But companies will most likely base remote compensation on competitive practice to avoid paying under market and allowing employees to be poached away because of pay.

Summary

Shifting attitudes about work and the workplace developed during the pandemic will carry over longer term and will impact compensation, hiring and retention in 2021 and beyond. What you pay employees and how you reward them with benefits and services will either help or hinder employee management plans in an increasingly competitive job market. Be sure to make the right choices based on what’s competitive for your industry and market.

Contact Us

For help or information on this topic, you can email me nlappley@lappley.com or call (847) 921-2812.

May 19, 2021/0 Comments/by Neil Lappley

Compensation strategy

Incentivizing Executive Compensation at Private Companies

When managed properly, private company executive compensation helps companies attract, keep, and motivate business leaders to achieve corporate objectives and generate financial returns. Many boards and recruiting teams at private companies struggle with the challenge, however, because they fail to consider the total compensation package or link it to desired corporate results.

According to executive recruiting software firm Thrive, opened executive searches grew by 18% in fourth quarter 2020 year-over-year with significant positive momentum swings in nearly all industries tracked. Although overall headcount is not expected to increase in 2021, demand for top performers is growing. To compete effectively for talent with public companies, executive recruiting teams are being challenged to develop more competitive compensation offers.

It is our experience that when executive pay aligns with corporate purpose, values, and strategies better performance is the result. A good private company executive compensation program begins with an organization’s strategic goals and business priorities. These objectives may have changed in the post-pandemic economy as some companies may have realigned their business purpose and strategies.

Although data about executive compensation at private firms is more difficult to obtain than pay at public companies, a WorldatWork biannual survey finds private firms are behaving more like their public company counterparts. In fact, spending on Short-Term Incentives (STIs) increased at private companies, reflecting 6.5% of operating profit compared to 6.0% in the prior survey. Moreover, an uptick in Long-Term Incentives (LTIs), from 54% to 62%, indicates private companies are taking a more holistic view to incentive management. An update to the survey is expected later this year.

With this data in mind, here are the pay variables and incentives to consider when preparing executive compensation plans:

Fixed Versus Variable Pay

Total compensation is made up of base salary (determined in advance and paid in cash), along with STIs and LTIs. Both types of incentives are variable or at risk and are typically contingent on achievement of organizational or individual goals.

The WorldatWork analysis shows that just under 65% of private company CEO compensation is variable. Reporting executives will have a somewhat higher percentage in fixed pay. When compared to public companies, small-cap companies pay approximately 70% of compensation in the form of variable payments.

Undoubtedly, as organizations reimagine the workplace in 2021 and determine how to adapt to future business needs, they are being challenged to keep up with the pace of change. For companies in transformation with ample resources to invest, greater emphasis should be placed on STIs to achieve short-term goals. Companies with less cash on hand and more focused on sustainability can incorporate LTIs.

Short-Term Incentives

According to the WorldatWork survey, Annual Incentive Plan (AIP) prevalence increased to 86%, which is up from two years earlier. Median target award levels are about 80% of salary for CEOs, although AIP opportunity often varies with industry, company size and appetite for risk. For positions reporting to the CEO, opportunity decreases by about half for each lower position level.

Most STI plans base payouts of performance against pre-established goals. Performance goals are generally derived from the organization’s budget. To a pronounced lesser extent, some companies prefer to base bonuses on after-the-fact assessment of performance.

Private companies typically use one to three performance measures, with profitability the most prevalent and revenue the second. In addition, we are finding a third measure related to Diversity, Equity, and Inclusion (DEI) being incorporated by approximately 25% of private organizations. DEI metrics will accelerate in coming years. The CEO is typically measured on corporate performance, while other executives are measured on both corporate and unit/division/personal performance.

Long-Term Incentives

Just over 6 out of 10 private companies have implemented LTI plans. That is up substantially over the past 12 years when only 35% reported having LTI programs in place.

Private companies offer three categories of long-term plans. Just over a third offer real equity programs, such as stock options, restricted stock units or restricted stock. Many owners are reluctant to part with real stock, however, as it dilutes their ownership. For companies that use real equity, total overhang is generally less than 10%.

Another option is phantom equity – used by 15% of organizations – including phantom stock and stock appreciation rights. The difficulty with these programs is the timing of reported results due to the lag in determining company values and the black box of valuations. The third alternative is cash-based performance awards used by 65% of organizations.

LTI eligibility is reserved for the CEO and other executives at the top level of the organization. Respondents related that median LTI incentive opportunity for CEOs is between 70% and 90%, falling about 30 percentage points for reporting positions.

Profitability measures are by far the most popular measure with performance plans, followed by a return-on-investment measure and revenue. Performance targets generally flow from budget or are an improvement over prior years. Cash payouts are primarily based on corporate results. Three years is the most common performance period, although it can vary from two to five years.

Summary

The robust economic recovery predicted by many experts will create fierce competition for executives who have proven they can perform under difficult circumstances. Organizations hoping to attract the best and the brightest must be ready with competitive compensation offers.

Copying another organization’s approach leads to suboptimal results. Make sure recruiting strategies and executive compensation packages are reality tested and aligned with corporate objectives.

Contact Us

Would you like to know more about private company executive pay practices or compensation planning for private companies? Please contact Neil Lappley at nlappley@lappley.com or call 847-921-2812.

April 28, 2021/0 Comments/by Neil Lappley

Compensation strategy

Pay Transparency Approaches

Pay transparency is a hot topic for employers navigating how best to meet growing demands to close gender and race-related pay gaps, as well as satisfy loyal employees. It can be a difficult needle to thread. How much pay transparency is too much? Should an organization adopt a pay transparency standard?

A new study by compensation software provider Beqom reveals employee perceptions about pay equality have eroded further in 2020-21 as many businesses adapted to the pandemic with work-from-home strategies, reduced work hours, and even temporary furloughs. In its survey just one year earlier, Beqom reported one-third of employees believed their companies had a pay gap, a view that negatively impacts employee retention.

During the latest economic downturn, many pay equity programs had to be put on hold as companies faced growing financial constraints.

Businesses that embrace pay transparency benefit in a variety of ways, not the least of which is by establishing a higher level of trust with employers and co-workers. Trust promotes respect and improves employee retention and loyalty. Top performers know their accomplishments are being recognized.

Pay transparency also helps employers make meaningful progress toward achieving Diversity, Equity, and Inclusion (DEI) goals. And when employers are more open about pay ranges for roles and job levels within their companies, employees can shift their focus to career growth and how to support organizational success.

Arguments against pay transparency include concerns that employees may have resentments if co-workers make more than they do or that failings in the company’s compensation, hiring and development systems may be exposed. Furthermore, pay communications can make employees vulnerable to being hired away. As a result, many organizations have rules against discussing pay. It is the author’s experience, however, that even with company restrictions, many employees continue to discuss pay among themselves.

Pay Transparency in Focus

When your company decides to proceed with a pay transparency program, organizations have three key decisions to make. The first decision is Why or determining the results to be achieved when communicating compensation. The second decision is What information will be communicated. Finally, the organization must determine the How, which focuses on the ways that pay information will be disseminated to employees.

Why options that define goals of your transparency program range from describing compensation strategy to linking company purpose with employee purpose. Other goals include improving understanding of compensation programs, increasing compensation ROI, enhancing employee engagement, and reducing turnover.

Initially, establish only one or two why goals to make your transparency approach straightforward. Be sure to put specific measures in place to determine if goals are met.

Next, determine What will be communicated, which depends on the degree of pay transparency planned. Some organizations only communicate the salary range and position in range for specific roles. Others seeking complete pay transparency reveal all salaries for every employee in the organization.

Additional choices include pay opportunity relative to market, sources of competitiveness information, how pay is determined, your overall compensation budget, specific groups’ pay relative to company average pay, and employee pay communication restrictions.

Finally, the How depends on the way the organization typically communicates. Options include one-on-one meetings, group presentations, manager training to enhance ability to explain programs, leadership videos, intranet, email, employee handbooks, and the annual total rewards report.

Summary

Although there can be challenges to successfully implementing pay transparency programs, the dangers of standing pat are even greater. Organizations need to have their compensation programs in order and pay transparency is a growing priority. In fact, the Beqom survey finds 51% of employees would consider switching companies with more pay transparency than their current employer.

Contact Us

If you found value in this article, please share it with anyone you think may also find it of interest. For help or information on this topic, you can email me nlappley@lappley.com or call (847) 921-2812.

March 25, 2021/0 Comments/by Neil Lappley

Compensation strategy

Giving a Promotion Without a Pay Raise

Compensation Alert periodically features guest articles from thought leaders in their fields. National speaker and trainer Jeff Kortes, founder of Human Asset Management LLC., shares his views on pay raises and promotions to reduce turnover. Jeff helps organizations recruit, engage, develop, and retain talent.

As an employee retention speaker and trainer, I see a lot. I also see a lot that simply amazes me. One of the things I just saw was an article in the Wall Street Journal that stated that 39% of employers hand out promotions with no pay increase. My question is: Why don’t you just slap the employee in the face and tell them to look for a new job?

In the opinion of this employee retention trainer, it is a huge insult. You want to give the person more responsibility, probably more work and not pay them anything more? Organizations that do this are just begging to have the person quit and go somewhere where they are rewarded for what they do.

You often hear people say it’s not about the money. I do not buy that; not totally. Few employees are independently wealthy and work just for the fun of it. People work to pay the mortgage, make the car payment, send the kids to college, and have a decent life. So, to an extent, it IS about the money. People are told to work hard and get rewarded. Then, when they clearly work hard, are doing something right, and get promoted and DON’T get rewarded for it, the perception of most people is, “That’s not fair.”

Most people expect to be treated fairly. In a fair system, the top performers get paid more!

The most important thing to this employee retention author is that not giving a raise sends the message you do not think enough of the person to pay them what they are worth. This is about respect (or lack of it). That is how most people would view it. They would feel disrespected. When people feel disrespected they get angry. That anger is one of the things that drives a person to action. The action taken may be to go home (or maybe even fire up their computer during lunch to look on Indeed for a new job).

Even in this economy, you might as well count that employee as a turnover statistic. The best people are always in high demand.

MY TAKEAWAY

Rarely does this employee retention speaker advocate throwing money at an employee retention issue. However, in this case, to quote a local Milwaukee attorney, “It IS about the money!” Money is a factor in employee retention and when an organization does promote someone, a pay raise is warranted. Organizations that do not do this risk losing some of their best people.

ABOUT THE AUTHOR

Jeff Kortes is a recognized speaker and trainer who helps organizations recruit, engage, develop, and retain talent. Founder of Human Asset Management LLC, he has more than 25 years of experience in human resources working with companies including ConAgra Foods, SPX, Midas International and American Crystal Sugar. He is a member of the National Speakers Association (NSA) and the author of several books including: Give Your Employees C.R.A.P., 7 Other Secrets to Employee Retention, and HR Horror Stories…True Tales from the Trenches. For more information visit http://www.jeffkortes.com

ABOUT LAPPLEY & ASSOCIATES

Lappley & Associates is a management consulting firm that specializes in the development and implementation of compensation programs for clients. We primarily consult with manufacturing, service, utilities, and not-for-profit organizations for medium and small-sized businesses.

CONTACT US

If you would like to discuss this or other compensation related topics, contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com.

February 14, 2021/0 Comments/by Neil Lappley

Compensation strategy

Look Beyond Compensation Surveys to Reset Salaries

What factors will your organization look at when determining 2021 salary budget increases and compensation plans? No doubt pay data will be part of your decision tree. But the volatile economy makes salary predictions challenging. To prove that point, forecasts from compensation surveys provided earlier in 2020 have shifted in recent months. That is why we advise companies to consider many more factors – both internal and external – when making their compensation plans.

We provided a roadmap outlining key actions to take in our September Compensation Alert. Since then and resulting from an extended pandemic, flexibility above all other factors has become priority one for employees, many of whom are working remotely and juggling care for children and parents. Health and financial wellness programs, telemedicine, education incentives and more personalized perks, such as a company library or Lifestyle Spending Account, are also growing in popularity.

So, where do we go from here?

Creativity and purpose will be essential elements to compensation planning in 2021. In addition to studying salary and compensation trends, benchmarking competitors’ total rewards strategies will be perhaps more important.

Here is our take on recent survey data and how employers can navigate the future to overcome financial pressures and motivate a world-class workforce for shared success:

Companies Reducing 2021 Salary Increase Budgets

According to the North American Compensation Planning Pulse Survey of 705 U.S. employers completed the week of September 21 by Willis Towers Watson, 35% have reduced their projected 2021 salary increase budgets from earlier estimates; 50% kept them intact. All non-executive employee groups are projected to receive salary increases averaging 2.6%, with executives getting slightly smaller increases averaging 2.5%. Willis Towers Watson’s prior survey conducted from May to July had salary increases of 2.8%. And while 84% of employers will deliver pay increases, almost one in six employees will not receive any.

A second study fielded Oct. 4-31, the WorldatWork 2020-21 Salary Update Survey, reveals almost 40% of 694 respondents either have made or are considering making changes to their 2021 salary increase budgets. The survey showed a projected average salary increase for all employee groups of 2.8%, down slightly from June’s forecast of 2.9%.

According to their press release, WorldatWork reports the projected 2021 salary increase budgets showed a slight 0.1 percentage-point drop since June, from 2.9% to 2.8%. Contributing to those declines was an increase in the number of organizations reporting zero or no salary budget increase.

Finally, Korn Ferry now reports about a third of companies are planning 2021 salary budget increases to 50% or fewer of their general employee population, three times the number of organizations reporting this finding last year. The projected increase in North America is expected to be 0.3% percentage points lower than 2020 or about 2.7% in 2021. Korn Ferry used survey data from its annual and periodic pulse surveys to provide these updated insights.

Our analysis: Organizations will plan salary increases that align with business conditions. Industries that are hurting will provide zero salary increases or allocate these selectively. Others doing well will be more generous. But all companies should set money aside to recognize top performers, those in critical roles, and high potential employees. After all, these employees are your most valuable assets and are most vulnerable to being lured away.

Non-Salary Rewards

Though many employees may not be receiving raises, they are increasingly being rewarded in other ways. For instance, WorldatWork reports significant increases in wellness and other employer-sponsored programs designed to promote a positive culture, recruit and develop talent, and retain valued workers. These perks range from telemedicine and counseling programs to tuition discounts, paying off college debt and caregiver leave.

Annual Incentive Programs

Many companies have adopted new business models based on how markets and their supply chain have been altered. Often, product mix, margins, investments, and growth expectations have changed. This requires them to change key performance measures used to determine incentive-based pay.

Setting 2021 performance targets, thresholds and performance ranges will not be easy. There will be questions about setting targets that may be lower than actual performance. Instead of setting specific targets, it may be appropriate for companies to use relative targets based on competitor or industry norms. Uncertainty may also lead to flatter payout curves. Or companies may bet on a rapid recovery and adopt steeper, more aggressive payout rules.

Summary

With more uncertainty ahead, now is the time to consider changes to your compensation strategies. We continue to believe that executives will not follow national market trends, but instead focus on doing what is economically feasible for future growth and sustainability based on local and regional developments. They will decide on what they want to invest in people rather than blindly following the market.

Contact Us

If you would like to discuss 2021 salary increases or other compensation-related topics, please contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com. A discussion carries no charges and perhaps after you get to know me and my capabilities, when an assignment arises you will call me.

January 10, 2021/0 Comments/by Neil Lappley

Compensation strategy

New 2021 HR Predictions

What will your HR and compensation priorities be in 2021? Chances are they will look a lot different from where you started in 2020. CEOs have had to make tough choices to survive a recession not of their making. Change has been the norm.

Although flexibility and resilience will still be required heading into next year, CEOs and HR leaders surveyed about the critical issues they face are struggling with how to optimize talent and skills to deliver on their business strategies.

In its annual CEO benchmarking report, The Predictive Index surveyed 160 CEOs about their top talent concerns. They wanted to find out: How is your organization’s health? How is senior management holding up? Is the team prepared for the work ahead? What kind of guidance are they looking for?

Surveying more than 800 HR leaders, the Gartner 2021 HR Priorities study sought to identify their key priorities to achieve business goals – namely, growth and cost optimization – in a sea of constant change. While the pandemic disrupted traditional ways of working, it also uncovered widespread skills gaps in the talent areas needed most today.

Here are each survey’s findings and their implications for the world of work in 2021:

THE PREDICTIVE INDEX 2021 CEO BENCHMARKING REPORT

Many executives are leading all-new teams, as 69% of companies restructured during the pandemic. It is not surprising then that finding ways for employees to work well together is a priority. Also, new teams mean new people problems to solve. Sixty-six percent of CEOs say productivity is a major concern; this worry is an increase from 36% in 2019.
Remote work is here to stay as 97% of CEOs will allow some degree of remote work going forward. Still, CEOs cite a large challenge in getting remote teams to work well together. This leads to conflict and leaders spending time mediating people issues. More important, CEOs whose operations are mostly remote believe their teams struggle to deliver on short-term and long-term strategic goals.
CEOs have had to navigate entirely new business circumstances due to the pandemic. As a result, 96% overhauled their business strategy in 2020. Currently 53% of CEOS say strategy development continues as their number one priority. Moreover, 80% believe a lack of strategic clarity runs deep within their organizations. Making sure that employees understand the mission and strategy is essential to ensure teams are equipped for the work ahead.

KEY TAKEAWAYS:

Management of remote teams requires a people-first approach and great amounts of time coordinating and communicating to maintain company culture and to ensure teams are engaged and motivated to meet their goals. Communicate new strategic direction throughout the organization, making sure that each level thoroughly understands and can communicate the strategy to the next level.
Do not neglect talent strategy. This means taking inventory of current skills, minimizing those that are becoming less important, and focusing on new competencies required. Help employees learn those new skills and rework the performance management system to reflect those changes.
Ensure that each employee function in the organization is directly tied to company function which will anchor employees to the company’s strategic direction. Make sure incentive plan participants understand how program measures support company strategies.

GARTNER 2021 HR PRIORITIES STUDY

Building critical skills and competencies is the number one HR leader priority, cited by 68% of respondents. Gartner reports that the number of skills per job increases 10% each year and that fully a third of skills present in 2017 will not be needed in 2021. This rapid skills obsolescence cycle makes integrating effective learning into workflows challenging, especially when it may be difficult to determine future skill requirements.
The second highest priority is organizational design and change management, a priority of 46% of HR leaders. Leaders report managers are not equipped to lead change, and employees are fatigued from all the change. A past focus on improving workplace efficiency has left many organizations with rigid structures and current roles that lack flexibility to meet evolving needs.
A priority of 44% of HR leaders is developing current and future leadership bench strength. They comment that current leadership is not diverse, succession processes do not yield the right leaders at the right time, and leaders struggle to effectively develop midlevel leaders. Bottom line: the leadership management pipeline today is not working.
Planning for the future of work is seen as a priority by 32% of HR leaders. Many say their organizations do not have a future of work strategy. They are struggling to adapt to changes in the market, such as how AI and automation will displace workers. The question that HR leaders face most often is where to start.

KEY TAKEAWAYS:

Update performance management programs to emphasize responsiveness to customer needs and build organization resilience. Make sure employees are learning the right skills. This may require more frequent and tailored revisions to learning programs throughout the organization.

Invest in technology and AI to improve corporate decision making and efficiencies.
Ensure that the diversity, equality and inclusion journey is manifested in the organization’s hiring, development, promotion and compensation programs through inclusive hiring, promotion, and compensation processes.