Today's post is a compilation of some interesting points from compensation articles I read on SHRM online.
Let's start at the top.
Executive Pay:
Stephen Miller's article regarding executive pay entitled Big Jump in Executive Pay, Proxy Statements Show references a Wall Street Journal/Hay Group 2010 CEO Compensation Study, which indicates that executive compensation jumped 11% in 2010. The majority of this increase was based upon a large increase in annual incentives (19.7%).
(http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/CEOPayJump.aspx)
In April of 2011, Miller wrote about a Towers Watson analysis of executive pay which indicated the following:
• The median total cash compensation, which includes base salary as well as annual and discretionary bonus payments, increased 17% for CEOs in 2010 vs. a 3% median increase in 2009.
• Total direct compensation, which includes total cash compensation plus the grant value of long-term incentives, including stock options, restricted stock and long-term performance plans, increased 9% in 2010 vs. a decrease of 1% in 2009.
(http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/CEOCompRebound.aspx)
Miller contrasts this with a Hewitt Associates survey that indicates that the average employee increase was 2.4% in 2010. The point is clear: executive compensation is on the rise.
Employee Wage Increases:
Miller's article from May cites a survey by Buck Consultants (Reviving and Inspiring the Workforce: 2011 Compensation Trends Survey) which indicates that there is a thawing of wage freezes (down to 9% of respondents from 48%) and an increase in average wage increase budgets from 2.2% at the beginning of 2010 to 3%.
Some companies are putting emphasis on pay-for-performance to help maximize the investment. This includes the use of bonuses. The largest portion of organizations (44%) indicated they expect to pay out bonuses that are at least 5% higher than the bonuses paid in 2010. An additional 31% indicates that the bonus payments will be within 5% of the 2010 bonus amounts.
(http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/2011Pay.aspx)
(https://www.bucksurveys.com/BuckSurveys/popup.aspx?src=/BuckSurveys/Portals/0/aspdnsf/images/Product/large/87.jpg)
Salary is Top Cause of Dissatisfaction:
The majority of workers (47%) indicate that salary is cause of their dissatisfaction with their jobs. The next largest group is dissatisfied with their work load (24%), according to a SHRM online article.
(http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/Dissatisfaction.aspx)
Pay Differences:
Employers can legitimately vary pay on a number of factors, such as location, position, and experience. A Culpepper and Associates article references the Culpepper Geographic Pay Differential Practices Survey findings, which indicate:
Of companies with geographic pay differentials:
• 86 percent use salary surveys (i.e., cost of labor) to determine geographic pay differentials.
• 69 percent adjust compensation by creating separate salary structures for various locations.
• 65 percent use data for individual cities to determine geographic pay differentials.
• 59 percent review their differentials annually.
(http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/GeoDifferentials.aspx)
However, employers may NOT vary pay on protected characteristics such as age, gender, religion, race, or color. Despite this fact, Miller's article from March 2011 refers to the White House report titled Women in America: Indicators of Social and Economic Well-Being , which points out that in 2009 women earned about 75% of what their male counterparts earned. This variance held at all levels of education, but the inequities are even more problematic for women of color.
In some ways this is good news; in 1979 women earned about 62% of what men earned. Still, it shows there is a long way to go before we reach the point of equity. A promising trend is revealed by the fact that in the age group of 24 - 34 year olds, women earn 89% of what men make.
(http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/WageGap.aspx)
The Use of Carve-Outs for Pay for Performance:
So, with less money to go around, how do we make the most of it?
Jim Kochanski and Robin Kegerise of Sibson Consulting wrote an article for SHRM that explains the use of Carve-Outs when budgeting to help support a pay-for-performance compensation model. For example, if an organization is planning on a 3% overall wage increase, 2.5% is set aside for average or high performers, with the additional .5% is reserved for merit pay for top performers.
The article suggests that the carve-out approach works because it creates a mind-set during several parts of the business cycle, such as budgeting, communicating and setting expectations, evaluating performance, and delivering differentiated rewards. One example the article gives is that a standard 3% increase often sets the expectation that all employees will get 3%. By setting the standard increase at 2.5% then allotting the additional .5% for top performers, the organization sets new expectations for employees and creates incentive for each employee to be a top performer.
The article also urges companies to take the step of being honest in communicating to employees. For example, there is no requirement that all money budgeted for increases be spent. If employees are not performing to standards, then they will receive less than the average budgeted increase.
The method of performance evaluation and the metrics used are very important when utilizing a carve-out approach. It is important to align employee objectives with company goals. When the metrics are aligned, then employee performance should have a substantial effect on company performance.
(http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/Carve-Outs.aspx)
Money is Not the Only Motivator:
Miller quotes Daniel Pink in an article from May of this year to make a point about compensation. Pink argues that "people are not coin-operated."
Pink goes on to say that, "people have more sophisticated needs. Human beings are profoundly attuned to the norm of fairness." He advises that employers "pay people enough to take money off the table" and "focus on the work, not the money," to motivate employees. He implores companies that employees cannot be controlled into being engaged and suggests that greater autonomy can lead to increased engagement, productivity, and profitability.
(http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/PinkMoney.aspx)
The Take Away:
Executive compensation is increasing at significant rates. Employee compensation is increasing as well but not nearly as quickly as executive compensation.
While the majority of companies utilize geographic location as a basis for variances in pay, which is legal, there remains a large gap between the wages of female and male workers. The good news is that the gap is decreasing and that the gap is smaller for younger workers (25-34 year olds).
Companies can utilize Carve-Out plans to make better use of their allotted increases by earmarking a portion of the budgeted overall increase to be used for top performers. Similarly, Pink urges companies to remember that money is not the only way to motivate and engage employees.
Works Cited:
http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/CEOPayJump.aspx
http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/CEOCompRebound.aspx
http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/2011Pay.aspx
https://www.bucksurveys.com/BuckSurveys/popup.aspx?src=/BuckSurveys/Portals/0/aspdnsf/images/Product/large/87.jpg
http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/Dissatisfaction.aspx
http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/GeoDifferentials.aspx
http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/WageGap.aspx
http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/Carve-Outs.aspx
http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/PinkMoney.aspx
Tuesday, June 21, 2011
Tuesday, June 14, 2011
FCRA Amendment Provides Direction on the Use of Credit Scores
On July 21, 2011, an amendment to the Fair Credit Reporting Act (FCRA) will take effect. The amendment provides direction on the use of credit scores as a pre-employment selection tool.
I personally don't like the use of credit scores as a pre-employment screening process. Credit scores can be impacted by how much an individual owes - regardless of whether or not he or she is able to pay it, the length of time the individual has had credit, how much new credit the individual has, and the types of credit he or she has. None of these factors would be particularly informative with regard to how the person will perform in a particular job.
In the past the EEOC has frowned on the use of credit scores because the use of credit scores could create an adverse impact situation. A study by Freddie Mac revealed that almost twice as many black people had "bad" credit records than did white people. As credit scores are based on information that is not necessarily reflective of the applicants ability to perform the job, employers should strongly consider whether or not there is value in using the credit score to determine eligibility for employment.
What the Amendment Requires:
In an article on the SHRM website by Allen Smith, Bruce Richards, an attorney with Taylor English Duma LLP in Atlanta and
formerly general counsel with the credit reporting agency Equifax, states that if an employer uses a consumer report that includes a credit score in order to determine eligibility for employment, the employer will be required to disclose that a credit score was used and to disclose information on the credit score, including the credit score itself, up to four key adverse factors in the score, and the identity of the agency that provided the score so that an applicant may contact the agency to correct any errors.
(http://www.shrm.org/LegalIssues/FederalResources/Pages/NewFCRARequirement.aspx)
This is a tad bit more onerous than utilizing a credit report because it requires the company to identify up to four key adverse factors in the score. When utilizing a credit report for pre-employment screening purposes, the FCRA requires that companies do the following:
Written Notice and Authorization
Before you can get a consumer report for employment purposes, you must notify the individual in writing — in a document consisting solely of this notice — that a report may be used. You also must get the person's written authorization before you ask a CRA for the report. (Special procedures apply to the trucking industry).
Adverse Action Procedures
Step 1: Before you take the adverse action (not hiring, firing, etc), you must give the individual a pre-adverse action disclosure that includes a copy of the individual's consumer report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act," a document prescribed by the Federal Trade Commission. The CRA that furnishes the individual's report will give you the summary of consumer rights.
Step 2: After you've taken an adverse action, you must give the individual notice orally, in writing, or electronically that the action has been taken in an adverse action notice. It must include:
- The name, address, and phone number of the CRA that supplied the report;
- A statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give specific reasons for it; and
- A notice of the individual's right to dispute the accuracy or completeness of any information the agency furnished and his or her right to an additional free consumer report from the agency upon request within 60 days.
(http://business.ftc.gov/documents/bus08-using-consumer-reports-what-employers-need-know)
The Take Away:
Employers should only use credit checks when the use of the check can be tied back to the position. Requiring a credit check for a janitor will likely be hard to defend, unless perhaps the janitor is responsible for purchasing supplies or has access to organizational funds.
When you have determined that a credit report should be run for a position, be sure to follow the appropriate steps as outlined in the FCRA in order to maintain compliance.
HR Consult Team can assist you with your pre-employment screening needs, including assistance with FCRA compliance.
I personally don't like the use of credit scores as a pre-employment screening process. Credit scores can be impacted by how much an individual owes - regardless of whether or not he or she is able to pay it, the length of time the individual has had credit, how much new credit the individual has, and the types of credit he or she has. None of these factors would be particularly informative with regard to how the person will perform in a particular job.
In the past the EEOC has frowned on the use of credit scores because the use of credit scores could create an adverse impact situation. A study by Freddie Mac revealed that almost twice as many black people had "bad" credit records than did white people. As credit scores are based on information that is not necessarily reflective of the applicants ability to perform the job, employers should strongly consider whether or not there is value in using the credit score to determine eligibility for employment.
What the Amendment Requires:
In an article on the SHRM website by Allen Smith, Bruce Richards, an attorney with Taylor English Duma LLP in Atlanta and
formerly general counsel with the credit reporting agency Equifax, states that if an employer uses a consumer report that includes a credit score in order to determine eligibility for employment, the employer will be required to disclose that a credit score was used and to disclose information on the credit score, including the credit score itself, up to four key adverse factors in the score, and the identity of the agency that provided the score so that an applicant may contact the agency to correct any errors.
(http://www.shrm.org/LegalIssues/FederalResources/Pages/NewFCRARequirement.aspx)
This is a tad bit more onerous than utilizing a credit report because it requires the company to identify up to four key adverse factors in the score. When utilizing a credit report for pre-employment screening purposes, the FCRA requires that companies do the following:
Written Notice and Authorization
Before you can get a consumer report for employment purposes, you must notify the individual in writing — in a document consisting solely of this notice — that a report may be used. You also must get the person's written authorization before you ask a CRA for the report. (Special procedures apply to the trucking industry).
Adverse Action Procedures
Step 1: Before you take the adverse action (not hiring, firing, etc), you must give the individual a pre-adverse action disclosure that includes a copy of the individual's consumer report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act," a document prescribed by the Federal Trade Commission. The CRA that furnishes the individual's report will give you the summary of consumer rights.
Step 2: After you've taken an adverse action, you must give the individual notice orally, in writing, or electronically that the action has been taken in an adverse action notice. It must include:
- The name, address, and phone number of the CRA that supplied the report;
- A statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give specific reasons for it; and
- A notice of the individual's right to dispute the accuracy or completeness of any information the agency furnished and his or her right to an additional free consumer report from the agency upon request within 60 days.
(http://business.ftc.gov/documents/bus08-using-consumer-reports-what-employers-need-know)
The Take Away:
Employers should only use credit checks when the use of the check can be tied back to the position. Requiring a credit check for a janitor will likely be hard to defend, unless perhaps the janitor is responsible for purchasing supplies or has access to organizational funds.
When you have determined that a credit report should be run for a position, be sure to follow the appropriate steps as outlined in the FCRA in order to maintain compliance.
HR Consult Team can assist you with your pre-employment screening needs, including assistance with FCRA compliance.
Monday, June 13, 2011
Workplace Violence
By: Kyle Shaughnessy
Workplace violence is a serious and growing concern for today’s employers. While violence committed by one employee against another makes up a very small percentage of the total number of violent incidents in the workplace, employers can substantially limit the potential for workplace violence by performing thorough background checks. There is no perfect system to eliminate the chances of such violence occurring, but there are some strategies one can use during background checks that can help employers spot potential risks during the hiring process and avoid putting themselves and their employees in danger.
A background check is a common part of the hiring process and can often be successfully used to research an applicant’s criminal history and to verify an applicant’s education and employment history. While the background check does a good job of confirming the information provided by an applicant, there are holes in a typical background check that can be filled in by taking extra steps to gather information about the applicant that may not show up during a typical background check. By performing a local or regional search based off of an applicant’s education and employment history to find out if someone has a criminal record, is a registered sex offender, or has shown other undesirable conduct in the past, one runs the risk of missing information in locations that may not necessarily show up on an applicant’s history, or in a location the applicant purposefully omitted from his or her resume in an attempt to hide information from potential employers. A national search casts a wider net and may turn up information that would be overlooked or completely missed by a local or regional search, giving your company the best chance to gather all the information you want to have before hiring an applicant.
Since it is possible that an applicant may have shown dangerous behavior in the past without being charged with a crime (information that would not show up on a background check at all), past employers may be able to provide more concrete information related to an applicant’s behavior, personality issues, or performance in the workplace. Checking an applicant’s references may give employers additional information on how applicants relate to coworkers and handle conflicts, which can indicate the potential for violence or unacceptable workplace behavior. This may not be as reliable a source as a background check, as some employers may be unwilling to give more than just basic information confirming an applicant’s dates of employment and job title, while others may give more feedback about job performance and character. A release signed by the applicant giving a former employer permission to give this extra information, while not necessarily something that can be required, may be helpful in gathering this extra information to determine the risks associated with a particular applicant.
Obtaining information from background checks or consumer reports must be done in accordance with the Fair Credit Reporting Act (FCRA). Before obtaining a report on a potential or current employee, an employer must notify the subject of the enquiry in writing that a credit report/background check may be sought for employment purposes, the person must consent to this in writing before the report is ordered, and he or she must be notified of his or her rights under the FCRA. If the information received by the report is cause to not hire the applicant, the employer must inform the applicant that the findings of the report are the basis for this decision and give him or her a copy of the report and the document “A Summary of Your Rights Under the Fair Credit Reporting Act.” After deciding not to hire the person, the person must be notified that this decision has been reached, supplied with the information of the agency that performed the report, and informed of his or her right to dispute or clarify the information in the report that led to the decision not to hire. Compliance with the FCRA is crucial to the background check process and gives the employer the opportunity to gather information without fear of legal reprisal, while also giving applicants a fair chance to address any questions, problems, or concerns that the employer may have related to information discovered in a background check.
The entire text of the Fair Credit Reporting Act can be found here:
http://www.ftc.gov/os/statutes/031224fcra.pdf
Again, even the most thorough background check cannot completely eliminate the possibility of workplace violence. There is always the chance that an employee may have a one-time incident without having shown any warning signs of dangerous behavior, and he or she may never act out in a violent manner again. It is important to avoid negligent hiring, however, and a thorough review of an employee’s background and employment history increases the chances that you may be able to avoid violent incidents and possibly save lives by simply gathering as much information as possible during the hiring process. Be sure your HR department is familiar with strategies on how to perform background checks and communicate with past employers to gather all the information necessary to give yourself the best shot at hiring the employees who you want to hire, or be sure that the company you hire to perform your background checks performs national searches of criminal databases and sex offender registries. Ultimately, the responsibility is yours to provide a safe work environment, and not being negligent in your hiring procedures is a valuable way to protect yourself, your employees, and your customers from workplace violence.
Works Cited:
http://workplaceviolencenews.com/2010/03/15/employers-advocate-background-checks-balances/
Workplace violence is a serious and growing concern for today’s employers. While violence committed by one employee against another makes up a very small percentage of the total number of violent incidents in the workplace, employers can substantially limit the potential for workplace violence by performing thorough background checks. There is no perfect system to eliminate the chances of such violence occurring, but there are some strategies one can use during background checks that can help employers spot potential risks during the hiring process and avoid putting themselves and their employees in danger.
A background check is a common part of the hiring process and can often be successfully used to research an applicant’s criminal history and to verify an applicant’s education and employment history. While the background check does a good job of confirming the information provided by an applicant, there are holes in a typical background check that can be filled in by taking extra steps to gather information about the applicant that may not show up during a typical background check. By performing a local or regional search based off of an applicant’s education and employment history to find out if someone has a criminal record, is a registered sex offender, or has shown other undesirable conduct in the past, one runs the risk of missing information in locations that may not necessarily show up on an applicant’s history, or in a location the applicant purposefully omitted from his or her resume in an attempt to hide information from potential employers. A national search casts a wider net and may turn up information that would be overlooked or completely missed by a local or regional search, giving your company the best chance to gather all the information you want to have before hiring an applicant.
Since it is possible that an applicant may have shown dangerous behavior in the past without being charged with a crime (information that would not show up on a background check at all), past employers may be able to provide more concrete information related to an applicant’s behavior, personality issues, or performance in the workplace. Checking an applicant’s references may give employers additional information on how applicants relate to coworkers and handle conflicts, which can indicate the potential for violence or unacceptable workplace behavior. This may not be as reliable a source as a background check, as some employers may be unwilling to give more than just basic information confirming an applicant’s dates of employment and job title, while others may give more feedback about job performance and character. A release signed by the applicant giving a former employer permission to give this extra information, while not necessarily something that can be required, may be helpful in gathering this extra information to determine the risks associated with a particular applicant.
Obtaining information from background checks or consumer reports must be done in accordance with the Fair Credit Reporting Act (FCRA). Before obtaining a report on a potential or current employee, an employer must notify the subject of the enquiry in writing that a credit report/background check may be sought for employment purposes, the person must consent to this in writing before the report is ordered, and he or she must be notified of his or her rights under the FCRA. If the information received by the report is cause to not hire the applicant, the employer must inform the applicant that the findings of the report are the basis for this decision and give him or her a copy of the report and the document “A Summary of Your Rights Under the Fair Credit Reporting Act.” After deciding not to hire the person, the person must be notified that this decision has been reached, supplied with the information of the agency that performed the report, and informed of his or her right to dispute or clarify the information in the report that led to the decision not to hire. Compliance with the FCRA is crucial to the background check process and gives the employer the opportunity to gather information without fear of legal reprisal, while also giving applicants a fair chance to address any questions, problems, or concerns that the employer may have related to information discovered in a background check.
The entire text of the Fair Credit Reporting Act can be found here:
http://www.ftc.gov/os/statutes/031224fcra.pdf
Again, even the most thorough background check cannot completely eliminate the possibility of workplace violence. There is always the chance that an employee may have a one-time incident without having shown any warning signs of dangerous behavior, and he or she may never act out in a violent manner again. It is important to avoid negligent hiring, however, and a thorough review of an employee’s background and employment history increases the chances that you may be able to avoid violent incidents and possibly save lives by simply gathering as much information as possible during the hiring process. Be sure your HR department is familiar with strategies on how to perform background checks and communicate with past employers to gather all the information necessary to give yourself the best shot at hiring the employees who you want to hire, or be sure that the company you hire to perform your background checks performs national searches of criminal databases and sex offender registries. Ultimately, the responsibility is yours to provide a safe work environment, and not being negligent in your hiring procedures is a valuable way to protect yourself, your employees, and your customers from workplace violence.
Works Cited:
http://workplaceviolencenews.com/2010/03/15/employers-advocate-background-checks-balances/
Monday, June 6, 2011
E-Verify Requirement for GA Employers Update
The Supreme Court voted 5-3 that states have the right to enforce mandatory E-Verify statutes tied to the issuance of state business licenses. The case was Chamber of Commerce of the United States of America v. Whiting.
Governor Deal signed HB 87, which requires companies to register with the federal E-Verify program and check the legal status of new hires, into law in May. The Supreme Court decision means that employers will need to comply with the new law.
The requirement to comply will be phased in with employers with 500 employees or more. These companies must begin using E-Verify on Jan. 1, 2012; employers with between 100 and 499 employees must comply by July 1, 2012; and those with 11-99 employees must comply by July 1, 2013.
The use of E-Verify does not alter the employers responsibility to properly complete and retain a form I-9 on all employees.
How HR Consult Team can Help:
HR Consult Team is an E-Verify Designated Agent, which means that HR Consult Team will be able to assist employers with the following:
- Enrolling companies and updating their profile information
- Registering new users
- Creating user accounts for other Program Administrators and General
Users
- Creating and managing cases
- Viewing reports
- Updating profile information for other Program Administrators and
General Users
- Unlocking user accounts
HR Consult Team will also audit your I-9 files and ensure that your company is in compliance, or assist with becoming compliant.
Governor Deal signed HB 87, which requires companies to register with the federal E-Verify program and check the legal status of new hires, into law in May. The Supreme Court decision means that employers will need to comply with the new law.
The requirement to comply will be phased in with employers with 500 employees or more. These companies must begin using E-Verify on Jan. 1, 2012; employers with between 100 and 499 employees must comply by July 1, 2012; and those with 11-99 employees must comply by July 1, 2013.
The use of E-Verify does not alter the employers responsibility to properly complete and retain a form I-9 on all employees.
How HR Consult Team can Help:
HR Consult Team is an E-Verify Designated Agent, which means that HR Consult Team will be able to assist employers with the following:
- Enrolling companies and updating their profile information
- Registering new users
- Creating user accounts for other Program Administrators and General
Users
- Creating and managing cases
- Viewing reports
- Updating profile information for other Program Administrators and
General Users
- Unlocking user accounts
HR Consult Team will also audit your I-9 files and ensure that your company is in compliance, or assist with becoming compliant.
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