Compensation Compilation

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