Tag Archive for: Hiring

7 Best Compensation Management Practices

Uncertainty and volatility have become the norm for organizations after more than two years fighting a global pandemic, supply chain disruptions, societal disorders, and now the highest inflation in 40 years and the possibility of a recession. In addition, a growing gap between job openings and available talent is making hiring more challenging, leaving many companies short-handed.

Each of these issues impact the bottom line and leave companies with difficult choices, often ad hoc, especially where compensation is concerned. By paying large increases to hire and retain quality staff, chances are company pay scales have been thrown out of balance. Without updating an organization’s compensation plan, this results in disparities existing between people in similar roles and job levels, a situation exacerbating turnover.

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To support hiring and retention efforts, conducting a review and analysis of your current compensation strategy should be a priority. Even more so today, workers are drawn to and remain with employers that offer fair, competitive, and equitable pay opportunities. Here are seven compensation management practices to follow when implementing your review:

Define the Compensation Strategy

Compensation strategy is the bedrock to establishing a pay philosophy. When formulating the compensation strategy, consider the following:

  • Company purpose, values, strategy, and culture. These shape the company’s approach to pay, including how employee purpose and values intersect with those of their employer.
  • Where the company recruits its people including industry, geography, and job type.
  • Competitive targets for salary, total cash, and total compensation.
  • Pay for performance, including rewarding team or individual performance.
  • Pay equity, diversity, and inclusion initiatives.
  • Compensation goals and the company’s approach to transparency.
  • Performance metrics that indicate that compensation programs are achieving their goals.

Determine Data Sources and Participate in Surveys

Multiple data sources – typically three or more – provide the necessary information to benchmark compensation in today’s pay environment. Consider location, and type of jobs in the organization, although often smaller organizations rely on one comprehensive survey. Sources of data include:

  • Salary survey data, where HR submits compensation information, it is vetted by the provider and reported by statistical analysis.
  • Free and open data often reported by governmental agencies.
  • Employee reported data submitted anonymously by current or past employees.
  • Pulse or quick surveys, compiled by HR firms and associations.

Additionally, surveys ask for company information including salary increase plans and information describing industry, location, and size. Participants receive statistical analysis by position.

Benchmark Compensation Program Competitiveness

As noted above most companies utilize market compensation data from multiple survey sources since any one survey will not provide an exact, ideal comparison. Hence, many times matches that approximate several survey sources are used for a job and determination is made by the analyst to combine the several data points.

Following market pricing many of the organization’s positions, a trend will emerge that will characterize the competitive position of the company’s pay programs relative to the market. Often this is reported as a percentile. In addition, intended aggregate salary increases are reported by participants.

Understand What Employees Want and Need

Employees are asking for greater reward differentiation, considering performance, age/life stage, gender, race, economic circumstances, and disability. One size does not fit all when defining employee needs and desired benefits. Start by listening to them. One-on-one meetings, focus groups, and surveys provide valuable insights to customize compensation offerings.

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Prepare the Compensation Budget

Each fall compensation develops a pay increase budget for the next year and follow a five-stage process.

First, compare actual competitive results from survey participation to competitive targets. Dig down to analyze competitiveness of superior performers, high-potential employees, and critical positions; compare new employee pay to that of veterans in same positions and to first and second level supervisors. Also look at pay equity issues previously uncovered and not addressed.

Second, look at what peer organizations are planning for compensation increases, both in aggregate and by function.

Third, understand the impact of inflation currently running at 40-year highs. Historically, organizations have not immediately responded to inflation, but to what the market of peers are planning.

Fourth, collaborate with finance who is pulling together an economic outlook for the company.

Finally, when a compensation plan is finalized, including salary increase budget and incentive pay opportunities, communicate it to the organization and educate its managers on administering the program.

Communicate the Compensation Program

Businesses embrace pay communications and transparency benefit in a variety of ways. Companies that are open about compensation earn greater trust from employees. In addition, pay transparency makes it easier to make progress towards achieving equity, diversity, and inclusion goals. Finally, employees who understand what they earn, how and why will be more fully inspired and connected.

Once you outline your communications objectives and key employee takeaways, determine what information will be communicated, how and when. Utilizing existing internal communications channels and creating feedback mechanisms often works best.

Manage Compensation

As pay decisions have become more complex, purpose-built software tools have replaced spreadsheets to support the design and day-to-day operation of a strategic compensation framework. More and more, leaders are leveraging many sources of data to drive more accurate and effective pay decisions. This is imperative as they manage salary increases; payments for short- and long-term incentive programs across business units and geographies; evaluate program performance; and test alternative scenarios solutions.

Contact Us

Neil Lappley is a leading expert on pay delivery and competitiveness compensation practice issues in the Midwest. He consults with clients on compensation design matters for executives and salaried employees, assessment of pay competitiveness, incentive compensation, conduct of compensation surveys, and salesforce compensation. He authors a widely distributed monthly newsletter and presents at state and local compensation and human resource conferences. Connect with Neil at (847) 921-2812 or nlappley@lappley.com.

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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:

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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.

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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.

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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).

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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.

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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.

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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.

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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.

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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.

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Answers to Your HR Questions

Sometimes great advice comes from our peers and respected colleagues. This is why networking, panel discussions and webinars are such powerful business education tools.

With that in mind, this issue of Compensation Alert shares expert insights from a diverse group of human resource (HR), management consulting, compensation and employee retention leaders. We asked them for feedback on three key questions impacting hiring and compensation management decisions in 2020. Our experts include:

  • David Gilmartin, managing director at Patina Solutions, a management consulting firm that partners with organizations to fill a key expertise or resource gap.
  • Jeff Kortes, an employee retention consultant, author and speaker. Jeff is founder of Human Asset Management.
  • Aaron Schneider, managing director of the Petenwell Group, an executive search and employee retention firm.
  • Rena Somersan, president of the Milwaukee Area Compensation Association (MACA). Rena also is the Newport Group’s managing principal, compensation consulting services.

Of course, HR compensation consultant Neil Lappley, founder of Lappley & Associates and publisher of this newsletter, also weighs in.

Here are Your Three Questions and Answers From our Top Experts:

1) What do you think will happen with wages, salaries and benefits this year?

Salaries will continue to increase; part of that is driven by what everyone is calling the “labor shortage.” Benefits will remain the same. Aaron Schneider

Wages and benefits will (increase) at a higher rate; lowest-worker wages will finally start to push the next tier of worker wages up. Middle-level managers will see wages go up at a rate lower than the lowest tier because (they) tend not to leave and (so) are subject to the “salary pool budget.” Jeff Kortes

Photo courtesy Pixabay

Wages will remain flat this year. With the state (of Wisconsin) not making changes to minimum wage, that alleviates the short-term risk.

Still, (there is) concern changes (will be) made for 2021 and beyond or at the federal level. David Gilmartin

Our market intelligence suggests that 2020 wage growth for production, professional (non-management), management, and executive job classifications will remain largely unchanged from the prior year, hovering between 2.8% and 2.9%. While we do not anticipate sweeping changes in benefit plan offerings for 2020, employers are modifying their benefit plans to entice younger workers. (Offerings include) tuition forgiveness, flexible schedules, and richer parental leaves of absence. Rena Somersan

Median salary increases will be flat at median 3.0% and average at 3.2%. Assuming the Consumer Price Index increases by 2.3% as projected by the International Monetary Fund, real salary increases will be .7%, the lowest level in 40 years. Neil Lappley

2) What are the biggest HR challenges facing your clients? What have you been hearing from them?

Recruiting and retention (are) the biggest challenge(s) and will be for the next decade at least. My manufacturing clients are still afraid to raise prices, but when they have gotten past that they have been making (prices) stick by telling clients they (can’t) keep talent if they are not competitive with compensation. When the argument is presented in this way, customers accept the increases. Jeff Kortes

No question the two biggest challenges facing management are retention and recruiting. Companies are expanding their sources for new workers and are paying more attention to taking care of current employees. For HR and compensation professionals, emphasis is being placed on pay equity and pay transparency. Neil Lappley

Photo courtesy Pixabay

Employee retention and hiring are my clients’ biggest challenges. The availability of skilled laborers is a significant risk in Wisconsin and beyond, especially with our strong manufacturing base. There is also concern for finding leadership and technology skilled resources. One example: Milwaukee Tool needs to find almost 800 (new) employees as they continue to expand in SE Wisconsin. David Gilmartin

Our clients and members of MACA are concerned about executive talent flight. The job market is hot for skilled executives who possess the managerial fortitude to lead organizations through major transformations in today’s increasingly competitive global economy. Rena Somersan

The pressure is on to review systems and processes. Many HR managers are under increased pressure to increase benefits, find candidates for job openings, and (improve) employee engagement. These managers are noticing that some of the same systems that worked for the last several years are changing. Aaron Schneider

3) What would you advise your clients – especially small and mid-sized businesses – who are having trouble hiring and retaining top talent in the current business climate?

As companies struggle to differentiate rewards and recognize excellent employee performance, they are increasingly turning to incentive compensation, both in number of programs and numbers of eligible participants. At the same time, employers are relying on gig workers to fill employment gaps in the tight labor market.

In addition, to capture and retain talent, employers are personalizing employee benefits – not necessarily high-cost perks – that align with their culture, offer greater flexibility and work-life balance. Neil Lappley

My advice it to take advantage of firms like (ours) who (can provide) experienced professionals who are willing to work in interim and project-based roles with clients. Businesses need to look beyond the Wisconsin state border; (Patina Solutions) has access to those resources and the ability to expedite the hiring process for our clients. David Gilmartin

Increasingly, executives at SMBs are being hired by larger companies. These larger companies likely have long-term incentive (LTI) programs in place to attract, retain, and reward executives for their contributions to the business. LTI programs provide actual or pseudo “ownership” in the firm and typically comprise a large portion of the executive’s total direct compensation package.

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To maintain a competitive edge, SMBs should determine whether their executive compensation programs provide a long-term incentive opportunity for key executives. The LTI opportunity should be aligned with the company’s strategic plan and future growth goals, and it should provide monetary rewards commensurate with performance and appropriate levels of risk taking. Even if SMBs cannot provide “ownership” in the traditional sense (i.e., equity), several cash-based program types might be considered. Rena Somersan

Hire where you are at. Meaning, in small and mid-sized organizations, it is important to hire people that fit your current organization, but maybe can take you where you’re going. (This also means not hiring) someone outside of your current capabilities. If you are focused on the ideal candidate and not getting jobs filled, shift to hiring candidates that fit the culture and be ready to train them up on the needed skills. Aaron Schneider

Focus on retention. In my case, I tell them to pay competitively and “Give their Employees C.R.A.P.”  (Caring, Respect, Appreciation, and Praise). Develop a strategy to retain people (versus) trying to recruit people. Jeff Kortes

Do you have more questions about where wages, compensation and benefits are heading in the current economic climate? Or would you like to connect with any of our Q&A contributors? If so, please contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com.

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