As we begin a new decade, the challenges facing businesses, executive leadership and HR professionals are growing. From societal changes to digital transformation, the trends shaping organizations have HR responsibilities evolving. These issues require fresh ideas and perspectives.

With that in mind, Compensation Alert will periodically feature guest articles from thought leaders in their fields. Our first is from national speaker and trainer Jeff Kortes, founder of Human Asset Management LLC. Jeff helps organizations recruit, engage, develop and retain talent.

Photo courtesy of Pixabay

Employee retention is the biggest challenge organizations will face in the next decade. The reality is that Baby boomers are retiring at a rate of 10,000 per day. There are simply not enough people to take the spots of the people that are retiring.

Trying to find replacements is difficult and costly, so when you do find them you need to be able to retain them. As an employee retention speaker and trainer, I have worked with organizations to address their employee retention issues. They cite various reasons, including:

The first and most frequent reason is money.

The bottom line is that having a revolving door of people costs an organization a lot. Those costs drop right to the bottom line.

One of my clients, a metal casting company, determined that it was costing them hundreds of thousands of dollars to hire new employees, train them and ramp them up to the point where they were producing quality parts. The owners were turning down sales because they didn’t have a fully staffed plant due to their employee turnover. To address the situation, they took the approach of:

  • Educating managers on what drives employee turnover,
  • Getting managers input on how to address those drivers in their organization, and
  • Taking certain key actions to improve job satisfaction.

These actions helped them reduce turnover by approximately 30% in the six-month period after our employee retention workshop.

Another compelling reason is the stress that employee turnover puts on the people who lead their teams and their departments.

In this case, the supervisors and managers who were leading the people in the organization were so stressed because of the constant turnover that they were experiencing that it was starting to take a toll on them emotionally.

The HR Director and the VP of Operations saw the toll it was taking on these leaders and realized it was not sustainable in the long run. They also realized that the reason that much of the turnover existed was because of the way their supervisors were leading.

As a result, they embarked on a six-month leadership training program to educate leaders on how to lead Millennials and Gen Z employees so that they wanted to stay with the organization.

Beyond starting to reduce the stress of excessive turnover on the supervisors and managers, they are also experiencing operational gains because of the change in leadership style.

Lastly, and most importantly, another reason for addressing the issue of employee retention is organizational survival.

When you can’t keep the people you need to run your organization and your competitors can, you are out of business. That’s reality. In the next decade, we will find that organizations that don’t get a handle on their employee turnover will find themselves unable to compete. When this happens, an owner’s years of working to build a business will be flushed down the toilet or stockholders will suffer massive declines in the value of the business.

One manufacturing client in a rural area with a 1.8% unemployment rate was simply running out of people. They had to stop the employee turnover, or the business would be in jeopardy.

Using a combination of an employee retention workshop to get buy in from supervisors and managers and a focused kaizen event on employee retention, the organization saw a significant drop in employee turnover in the next year so that they now have a stable workforce. In fact, they were not only able to survive but are now able to grow.

In Conclusion

Regardless of the reason for embarking on an employee retention initiative, delaying the inevitable impact of employee retention is sheer insanity. The key to attacking employee turnover is to recognize that if you don’t take focused action, the issue is not going to go away.

The days of thinking that you can simply replace people are gone — long gone. And, the reasons for taking action are compelling ones. Clearly, it’s in the best interest of any organization and the leaders who must bear the brunt of turnover to act on this compelling business issue.

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, contact me at jeff@humanassetmgt.com, 414-305-9626 or visit http://www.jeffkortes.com.

From Wall Street to Main Street, the issue of pay equity and demands for a fair living wage are making headlines across the country. Despite the growing furor, the idea that employees performing substantially equal work should be paid equally is not new. The Pay Equity Act was passed in 1963, followed by the Civil Rights Act of 1964 and the Lily Ledbetter Fair Pay Act of 2009.

However, laws alone have not closed the gap in pay disparity in many industries, a trend that also impacts small and mid-sized businesses. One reason may be that most companies are reluctant to share in-depth salary information about their employees based on race and gender data.

Recently, chip maker Intel made the unprecedented move to publicly release this data for 51,000 U.S. workers. The report was sent to the U.S. Equal Employment Opportunity Commission (EEOC). This is the first year that the EEOC is requiring the same kind of pay data from all companies with more than 100 employees, though companies aren’t required to publicly disclose that data. Previously, the EEOC asked for race and gender data, but not pay information. Intel released its data after settling a pay discrimination lawsuit for $5 million in October.

As this example illustrates, organizations can face significant financial and legal ramifications if they are viewed as paying employees unfairly. And while most employers are motivated to do the right thing, what may be well intended with good workplace policies sometimes falls apart in actual practice.

Pay Equity Trends

Increased scrutiny of employer pay equity has made this a hot topic for companies of all sizes. For this reason, total rewards association WorldatWork conducted a Pay Equity Practices and Priorities Survey to assess the current state of pay equity related work. Key findings include:

Gender pay gap and broad pay equity analysis is becoming standard practice for organizations (79% and 71% respectively).

  • Additionally, 55% reported remediation strategy execution and remedial option evaluation (52%) are not far behind.
  • Interestingly, 32% of respondents are not looking at performance management practices. This is surprising since performance management programs tend to be subjective.
  • While employers are looking for potential biases that may influence pay disparities, benefits programs are not receiving the same attention.
  • Only 9% of organizations said gender pay gap analysis is not on their radar.

In another survey conducted by WorldatWork earlier this year in partnership with pay consultancy Korn Ferry, larger companies reportedly were more likely to take action on pay equity than smaller businesses. In fact, regulatory compliance and culture initiatives are key drivers behind pay equity management programs. So is the desire to improve employee engagement and build trust in organizations.

Still, the ultimate test of faith depends largely upon how pay equity is managed within the organization and how well pay equity initiatives are communicated to employees.

Changing Laws and Uncertain Politics

Employers navigating complex pay equity issues are just as likely to encounter a changing morass of state and municipal laws, some which assign rewards for liability and damages. According to some legislation, potential new hires are entitled to know what the pay range is during recruitment.

In addition, with national elections looming in 2020, public policies to address pay inequities could further expand. As a result, how organizations justify differences in employee pay based upon merit, seniority, or other factors may also need adjustment.

To land safely on pay equity issues in an uncertain political climate, companies are advised to:

Conduct comprehensive pay equity and pay gap analyses;

  • Identify diversity and inclusion priorities, then follow through;
  • Look into biases that may be discouraging promotions within the company; and
  • Define clear metrics for good performance, then ensure that unconscious biases don’t have an unwanted influence on performance evaluations.

Pay Transparency Pays Back

In today’s digital world, savvy employees have easy access to compensation information from online sources like Indeed, LinkedIn and GlassDoor. Therefore, they know what to expect to earn at a job. And The result is that companies can no longer avoid transparency when it comes to pay.

Being transparent about pay, at the same time, allows employees to understand their pay, how it relates to company values and how it compares to public information. The result is to strengthen the employee/employer relationship.

There are three reasons why compensation transparency matters:

  1. It’s important to employees. According to a recent survey by Mercer, reportedly only 19% of employees gave their employer an “A” for equity and promotion. In addition, data shows that in the past five years employee perception of pay has declined.
  2. Lack of transparency hinders organizations from achieving diversity in the workforce. It has been shown diversity in the workforce leads to higher performing organizations. Transparency supports holding companies accountable for compensation decisions made.
  3. Democratization of pay has made it easy for employees to have access to competitiveness information, taking compensation information out of employers’ control.

In Conclusion

Pay equity and equal pay for equal work seem like no brainers. But it’s not easy to change perceptions that are heavily entrenched in our society. Pay equity, however, is having an outsized impact on employer’s ability to hire and retain top talent in today’s highly competitive labor markets.

To discuss how pay equity and transparency can be addressed to attract and keep top talent at your organization, please contact Neil Lappley at (847) 921-2812 or nlappley@lappleiy.com.

Photo courtesy of Pixabay

Despite uncertainty about where the U.S. economy is heading, recent salary surveys from compensation consulting firms reveal that salaries are expected to either increase slightly or hold steady versus 2019 salaries. In this issue of Compensation Alert, we look at how companies are planning to deal with 2020 salary budgets to remain competitive and retain top talent.

Survey information was gathered from human resource professionals facing an extremely tight labor market, increased investment in pay equity adjustments and climbing minimum wage rates. What’s more, many economists are predicting slower economic growth and greater risk for a possible recession within the next two years.

Under these conditions, participating organizations in this year’s salary surveys provide crucial insights into how companies are budgeting for salary increases in 2020.

WorldatWork

WorldatWork survey participants report that in 2019 salary budgets grew slightly to 3.2% average (median 3.0%) meeting last year’s projections. They expect salary budgets overall to increase to 3.3% in 2020. Specific pay increases are expected to be:

  • 3.2% for exempt salaried workers,
  • 3.3% for officers and executives,
  • 3.1% for nonexempt employees, and
  • 3.2% for nonexempt hourly.

In addition, pay equity continues to be a significant issue to organizations. The WorldatWork survey finds that 42% of participants plan to budget for pay equity increases in 2020, up from 37% in 2019. When pay equity adjustments are not budgeted, 46% of respondents report that company savings will be used for adjustments in 2020.

Promotional increases in 2020 are projected to average 8.9%, up slightly from 2019. The portion of salary increase budgets attributed to merit are projected at 3.0%. Not surprisingly, the largest increases in salary budgets are from the East Coast (Washington DC and Boston) and the West Coast (Denver, Portland, San Diego and San Jose). In 2019, the reported average salary structure increase was 2.2%.

Willis Towers Watson

According to the 2019 Willis Towers Watson General Industry Salary Budget Survey, salary increases are expected to hold steady in 2020. The survey reveals increases of:

  • 3.1% for exempt and non-management employees,
  • 3.1% for management employees,
  • 3.0% for nonexempt hourly workers,
  • 2.9% for nonexempt salaried employees, and
  • 3.1% for executives.

The survey finds that employers will continue to reward star performers larger increases than average performing employees. According to the survey, the highest performing employees were granted an average increase of 4.6% in 2019, about 70% higher than the 2.7% increase given to those receiving an average increase.

To retain your best workers, as compensation consultants we have long advanced a minimum increase for star performers should be at least two times the increase to average performers. Although the differential has crept up over the past few years, it still has not reached a minimum ideal level.

Mercer

Mercer’s findings are consistent with WorldatWork’s 2019-2020 Salary Budget Survey. While overall salary increases were 3.5% in 2019, they are projected to be 3.6% in 2020. Survey results show that merit increases for 2019 were at 2.9%, while mean and median merit increases are expected to be 3.0% for 2020.

Additionally, the Mercer survey found that there was no change in the number of employees receiving promotional increases in 2019. The average promotional increase was 9.3%, slightly more than the 8.9% increase recorded by WorldatWork.

Further findings reveal organizations continue to use performance ratings to differentiate salary increases, although a small portion do not use performance ratings (14%). Among this small group, the majority distribute merit pay based on manager discretion with oversight by business leader or HR/compensation.

The survey also finds that high performers received 1.6 times the salary increase of average performers.

Payfactors

The Payfactors salary survey provides detailed responses for U.S. and Canadian employers, with data broken out by industry, revenue, organization size, region and state.

According to the Payfactors survey, average salary increases in 2020 are expected to be:

  • 3.2% for exempt employees,
  • 3.2% for exempt (non-management) employees,
  • 3.2% for managers, and
  • 3.1% for officers and executives.

Industries reporting higher expected increases include professional services, pharmaceuticals, software, technology, metals, and oil and gas. Industries expecting lower increases include retail, not-for-profit, hotels and restaurants, banks and aerospace. The survey shows little difference in average increases by region.

Salary.com

According to its annual Salary.com Salary Budget Survey, median annual salary increases are expected to remain flat at 3.0% for 2020. The salary.com survey average salary increase is significantly lower than the salary increases predicted in prior cited surveys. Although different survey methodology may be present, also likely at play are different survey populations.

Variable Pay Programs Becoming More Important

After reviewing the results of these top-rated surveys, it is apparent that many organizations are struggling to remain competitive on salaries to attract and retain top talent. That’s why many are moving towards variable pay programs. Rather than investing in long-term, fixed salary programs, companies are focused on rewarding and retaining top talent via pay-for-performance incentive programs. Along with improving employee engagement and reducing turnover, another benefit to these programs is stronger market competitiveness.

How Do You Determine Your Salary Increase Budget?

Clearly, predicted market increase budgets are only one input to weigh when deciding on your salary increase budget for 2020. To begin with, it is important to distinguish between your competitiveness goal and your overall compensation strategy. Next, examine how far above or below that goal your current salaries are. Finally, evaluate how close your company can come to meeting your 2020 salary goal based on available funding.

One final point to consider: recessions are inevitable. Organizations that take strategic compensation and human resources actions in advance of these downturns will be better positioned when the economy turns around.

In Summary

Please contact me at (847) 921-2812 or nlappley@lappley.com if you would like to discuss this topic further. In addition, you can read more on this topic at lappley.com. Please share this article with anyone who think may be interested.

How well do your employees know your company’s compensation strategy? Chances are that without a clear understanding of your organization’s pay program, your employees will not appreciate their value to the company.

In a 2018 Conference Board survey, it was reported that only 43% of employees were satisfied with their wages. Worse still, a low 27% were satisfied with their bonus plan. Clearly, better communication about compensation creates an opportunity to improve employee satisfaction, which drives employee retention, productivity and performance.

Because managers are responsible for communicating compensation details to the workers they supervise, much of employees’ understanding of an organization’s pay program rests with them. Not only do your frontline managers play an important role in leading pay discussions, they give context to compensation decisions and are key to promoting employee engagement.

According to Gallup’s 2015 State of the American Manager study, managers account for at least 70% of the variance in employee engagement scores across business units. Therefore, how well they communicate your company’s compensation program can mean the difference between better performance or a demoralized workforce.

Communicating Compensation: No Small Matter

Facilitating pay conversations between managers and employees is no easy task. First, they are busy. After all, they are the focal point of performance of their group.

Second, they are likely to shy away from tough conversations. This is doubly true for employees who are difficult to manage. Anxiety can lead managers to provide insufficient explanations, shift the blame to others, or avoid the conversations entirely.

In fact, a 2015 Harris poll found 69% of managers are uncomfortable communicating with employees at all. As a result, communications regarding compensation are often the last item on their agenda.

To boost managers’ confidence for effective compensation discussions with their employees, here are five things to consider:

Prepare a Compensation Strategy and Communication Plan

Arguably the most important aspect of communicating pay is the organization’s compensation philosophy and strategy. It explains why and how employees are compensated. Prepare a written compensation philosophy and comprehensive strategy, then give your communication strategy the same, thoughtful preparation.

Your communications strategy defines the approach your company will use to communicate with all communities. It should include clear objectives, well defined timeframes for achieving them, an implementation plan and a monitoring process to assess results and pinpoint improvement areas.

Define Your Core Messaging

Consistent, top-down communication about the compensation strategy is critical to promote affinity and avoid confusion. Make sure your messaging reflects the values and philosophy guiding your company vision and how your pay program rewards performance. Determine what information should be shared with your respective employee groups and when. Invest time and resources to get it right, starting by gaining buy-in from the executive team before rolling communications out to managers and finally employees.

Identify Channels for Communication

Who is your audience and what are their preferred methods of engagement? Identifying who your stakeholders are can help you determine which communities may have similar information needs and the best channels to reach them.

Face-to-face meetings provide opportunities for real-time interaction and feedback, while the company intranet or newsletter lets employees read at their own pace. Use a combination of channels to communication often. Consider the timing of key events and company milestones to demonstrate progress and showcase achievements.

Develop Communication Materials

Start with a statement detailing the elements of compensation and highlight how each element works, why it was chosen and how it links to the company’s overall business strategy. Describe how survey data was used to arrive at salary ranges and incentive plans. In addition, explain how merit increases were designed and add detailed descriptions of incentive programs, including measures used to calculate incentive payments.

Tables and bulleted lists present information in an easy-to-read format, as do charts and graphs illustrating the value of employee rewards and compensation. Concepts such as range penetration (the level of an individual salary compared to the total pay range) or compa-ratio (the relationship of base pay to market expressed as a percentage of the midpoint of the salary range) should be defined.

Some measures are more useful than others when calculating salary ranges within your organization’s job grade ranges. Typically, which measures to utilize depends on your organization’s pay philosophy and how competitive your industry’s pay structure may be.

Finally, a frequently asked questions document serves as a primary resource to address anticipated issues, matters of concern and items for clarification.

Develop a Feedback Loop

The evaluation of your communications program impact is a continuous process. Use confidential surveys, focus groups and interviews to gauge the impact of your communications and provide employees with meaningful opportunities to contribute ideas for improvement.

Training Managers on Effective Communication

If your managers feel ill prepared to have discussions with their employees about your compensation strategy, you can expect the uncertainty and negative consequences of poor communication to have a cascading effect.

Misunderstandings can occur when an employee is feeling they are not getting the information that they need. And when conversations get heated, managers must know how to recognize when the discussion has become counterproductive or frustrating to the employee.

Different people learn in different ways, so consider developing multiple options for managers to learn. For example, you may want to incorporate:

  • In-person, instructor-led training;
  • Interactive e-learning courses;
  • Video, particularly having senior management describe how the organization’s compensation programs support achieving corporate objectives; and
  • Webinars.

Having challenging conversations is part of being a good manager. When handled in the right way, managers can avoid the difficult situations that come with the territory. Remember to:

A. Practice, Practice, Practice – Prepare what you plan to say and consider what the employee is likely to currently understand. For instance, does he believe he is a high performer and that a salary increase or bonus is on the way? Is the employee likely to have an up-to-date understanding of the organization’s compensation philosophy and strategy?

B. Establish a Sense of Trust – Conversations regarding pay are easier if the manager is already comfortable talking to the employee in general.

C. Have Straightforward Conversations – Communicators are most effective when they avoid jargon and get right to the point.

D. Anticipate Reactions – Effective conversations do not end with managers communicating decisions and then walking away. Allow time for employee questions and choose a private place without interruptions. When an employee has a negative reaction to pay decisions, a follow-up meeting may be necessary to address the employee’s expressed concerns.

To be sure, your managers are one of your most important links to a successful compensation strategy. By educating your managers about your compensation strategy and training them to communicate it clearly, your employees will have a better understanding of their real value to your company. That effort will translate into a better return-on-investment in your strategic compensation program.

If you enjoyed this or other articles I have written, 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.

Pay equity is a topic that isn’t going away. Rather, the spotlight is only getting brighter.

This makes understanding possible pay gaps between the men and women in your workplace and adopting proactive approaches to remedy pay inequities more important than ever. For instance, according to the American Association of University Women, 42 states as well as Puerto Rico and Washington D.C. proposed new pay equity legislation last year. Not all the measures passed, but enough did making it challenging for organizations operating in multiple markets to address the issue of pay equity in a comprehensive way.

A growing number of states and local governments have made it illegal for employers to ask candidates for their salary history. The rationale for the law is this: since females have historically been paid less than males, platforming a new salary over a low salary only perpetuates the difference. In response to this trend, a recent WorldatWork survey finds that 37% of companies have a nationwide ban on asking potential candidates about their past pay.

Additional legislative approaches to tackling pay equity include new laws promoting more pay transparency; others give employers protections for making “reasonable progress” toward pay equity. Clearly, the shifting landscape and impact of gender wage gap laws raise compliance and performance concerns for companies and their compensation policies.

What is Gender Pay Equity?

When we talk about gender pay equity, this often is confused with equal pay or these terms are treated interchangeably. However, there is a difference.

The gender pay gap is a broad measure between the aggregate pay for women and men across the organization. It is expressed as a percentage of men’s earnings.

Equal pay requires women and men doing the same or a substantially similar job to receive the same compensation and benefits. In other words, equal pay for equal work.

It is important for businesses to understand the distinction. Why? Both areas should be examined to better understand pay differentials within your organization and the factors at play impacting your talent management programs.

Understanding Gender Pay Equity

Several studies in recent years have looked at pay gaps to better understand the causes and impacts.

In a new article, “More Than a Pay Gap,” management consulting firm Korn Ferry examined its compensation data base for organization-wide pay differences within 110 countries. What they found is that the gap in the United States narrows considerably the more specific the comparison becomes. While women on average earn almost 18% less than men, the gap between a man and woman working in the same job level for the same organization in the same function is typically only .9%.

Korn Ferry researchers have concluded the reason women are paid less than men is not necessarily the result of unfair pay practices. Indeed, this may be the case in some organizations (after all, averages mask actual comparisons). Rather, the gap in pay is deduced to be the result of fewer women working in higher paying industries or leadership functions.

As the Korn Ferry study reveals, the solution to the organization-wide gender pay gap represents a complex and systematic challenge. We will focus on how to meet the challenge in a future issue of Compensation Alert. Meanwhile, companies have immediate opportunities to evaluate whether your organization is complying with equal pay statutes.

Conducting a Pay Equity Analysis

Inequitable pay practices can pose immediate risks to your business – including reputational risk. To help uncover possible issues driving any pay differentials within your organization, conducting a pay equity analysis is recommended. Following is a step-by-step process overview:

It may be prudent to consult with a lawyer, as audits of this type are often protected by lawyer-client privilege.

  • Identify the equal pay practices you want to investigate.
  • Gather data on employees grouped by comparable worth. Jobs should be examined regardless of job title, with the focus on work performed, the manner in which the work is performed, and the skills required for the job.
  • Determine what drives pay most, whether desirable factors such as performance and/or level or undesirable factors such as race, gender or age are involved.
  • Beyond the job-based analysis, the study should look function-by-function, manager-by-manager, and location-by-location to see if any equity trends emerge. Any pay gaps can then be closed.
  • Following the job-based analysis, it is important to dig into the causes of those gaps. For instance, salary structure and other compensation tools need examining.
  • Finally, leaders must be committed to change if undesirable factors influencing pay have been discovered. Change can only happen if commitment exists at all levels to ensure fairness, consistent communications, and organization-wide management practices.

Conclusion

The type of pay analysis described above will need to use comprehensive compensation market data, review and likely overhaul compensation administration guidelines, and update job grading systems. But smart organizations can turn it into an advantage. How? By looking beyond current law to build proactive policies and practices promoting gender equality (and diversity of employees) and embedding these values into the company culture.

Further, experts say that organizations that manage pay equity well and have diverse, inclusive cultures post higher returns and have more trust in leadership, greater employee engagement, and less turnover. Organizations that fail to manage pay equity well are subject to the inverse consequences, plus increased risk of litigation.

Let’s Connect

If you enjoyed this or other articles I have written, please share it with anyone you think may also find it of interest. For help or information on this topic, you can email me or call.

Contact me at (847) 921-2812 or nlappley@lappley.com.

March 2019

In our November Compensation Alert, we argued that compensation transparency leads to greater employee engagement. When done correctly—with a well-defined plan and communications approach—compensation transparency becomes a powerful tool for attracting and retaining top talent.

Although there is widespread agreement on the benefits of pay transparency in the workplace, what is not always understood is the best way to implement it or just how transparent companies should be. This newsletter looks at the pros and cons for pay transparency and offers recommendations to find the approach that’s right for your company.

Opinions on Pay Vary

In the 4th Quarter 2018 WorldatWork Journal, compensation researchers Dow Scott and Devin Jordan reported on a new Pay Transparency Survey using participants’ data collected by Amazon. The study examined how employees perceive their employer’s pay communications and levels of pay transparency and sought to answer whether increased understanding of an employer’s pay structure and policies is related to retention, trust in management, and pay satisfaction.

Although the survey shared differing views on some salary issues based on age, gender and other factors, it revealed the amount of pay information is positively related to perceptions of satisfaction and trust in management and negatively related to employee intentions to quit.

Overall, respondents believe their companies communicate on most aspects of pay. Over 75% of respondents say their employers communicate pay policies and procedures and agree that questions to their employers about how their pay is determined are answered. A lesser number of survey participants (less than 50%) say they are communicated to about merit increases and changes in salary ranges.

Additional survey findings give us a better picture:

  • Culture: Interestingly, 38% of employees believe their organizations pride themselves on being transparent about pay while an equal number disagree. Half of respondents believe there are strong organizational customs about not discussing pay. But only 18% think they will be disciplined or fired for sharing pay information.
  • Privacy: 46% of employees believe that information about base pay or salary rate should be kept secret. Just over half believe that other employees should not know how an employee is paid. Younger employees, as expected, are less concerned about sharing pay information than older employees.
  • Info Sources: The HR department (57%) and managers (60%) are the primary sources of pay information, respondents said. Just 34% get their pay information from other employees, 32% from web sites. It’s worth noting that employees still rely on management as their primary compensation information source despite so much salary information now widely available on the internet.

It’s no secret that compensation can be a challenging topic in the workplace. For this reason, determining the amount and type of information to be shared has always been problematic to employers.

More pay transparency often contributes to employees’ sense of fairness, especially when they believe how they are treated is the same as others in similar roles. Knowing pay ranges upfront can also align employee expectations about what they can do to achieve strategic goals. For ambitious employees, having a clear career path in the organization encourages them to pursue growth opportunities that also contribute to company growth.

However, explaining the justification between salary levels requires thoughtful communication and an open dialogue about pay. If handled poorly misunderstandings can arise. It’s also important to remember that if too much individualized salary information is shared, star employees may be more vulnerable to being hired away by competitors.

Walking the Pay Transparency Line

With these pros and cons in mind, we advise employers to land on the side of increased compensation transparency, but with the caveat strategic communication must also become a top priority. Consider the following:

  • Start by surveying your organization to learn what employees’ communication preferences are. Although communication style or frequency may not be the same for all employees, pay transparency is important to all.
  • Keep individual pay information private. Communicate pay philosophy, compensation strategy, and pay structure, including salary ranges, merit increases, and incentives for every position in each job family. That way employees who may want to learn new skills or try for a new position at a higher pay level know where their aspirations will take them. Explain how, when, and why the organization makes rewards decisions and plan to communicate these points regularly. Show how compensation supports the goals and strategies of your organization.
  • Train managers in the details of your organization’s compensation program and give them the tools to communicate benefits and opportunities to employees.
  • Because women in the Pay Transparency Survey said they are not receiving as much information about pay as men, take additional steps to close this gap.
  • Provide a total rewards statement annually. This gives employees a full sense of all benefits they enjoy on behalf of your company.

We recognize that how your company approaches pay transparency needs to be as individual as you are. The key is to commit to more pay transparency and to evolve your plan as organizational needs change. In the end, your employees and company will be better off.

Contact Us

Please contact me if you would like to discuss compensation transparency, why it is important and how to go about it. Also, feel free to pass this newsletter on to any interested parties. I can be reached at nlappley@lappley.com or (847) 921-2812.

The year 2018 has been one of major volatility in many markets creating widespread uncertainty. In this environment, it is understandable that companies are evaluating the impact market volatility may have on their salesforce incentive plans for 2019.

Fortunately, mindful planning and clear communication about your salesforce incentive plan can accelerate growth even in an uncertain economy. But first, two important next steps are to sell this new plan to the C-Suite and effectively communicate the new plan to the salesforce. Getting these steps right creates a double win. Salespeople win because appropriate rewards are available to them, while the company wins with a more motivated sales team aligned with the company’s goals.

Here are four recommendations supporting a win-win outcome by gaining approval of your salesforce incentive plan with the C-Suite:

1) Provide a Clear and Crisp Upfront Summary. Make the first page of your summary a topline summary. Start with the reason for change, a brief description of the approach used in analyzing the current plan, the primary plan changes being suggested, and the results of the new plan’s simulations. Then end with the benefits of the new plan (for example, better alignment with the company’s business strategy or more focused emphasis on margin enhancement).

2) Present the Rationale for the Recommended Plan and Tailor It to Your Audience. Visual perception research suggests that presenting a picture can often be more persuasive, engaging and powerful than text and speech alone. You can think of using a visual, for example, to demonstrate the extensive analysis done on the current plan.

Also, consider using a well-constructed table with numbers to let the C-Suite see for themselves the point you are making.

3) Strive for Clarity and Transparency. Sufficient time should be spent to ensure each page of the presentation is crisply worded and each chart can be clearly understood. Without this, the credibility of the speaker and the recommendations will both suffer.

4) Tell Them Again What You Told Them. At the end of the presentation, share an executive summary to refresh everyone on the main takeaway points. Then ask for agreement. Be prepared and open to engaging your audience in discussing your recommendations, alternatives you reviewed, or objections that may arise.

After securing approval for changes to next year’s salesforce incentive program, it’s time to move to the task of communicating the plan to your salesforce.

Here are three recommendations to get your salesforce on board with the incentive plan:

1) Provide a Clear Summary Incentive Plan Description. Including these elements in the description will promote understanding.

  • State briefly the business reasons why the incentive plan has changed.
  • State the incentive plan components along with a clear description of each. 
  • Show an example of how the new incentive plan payout at target compares to the old plan by using an example of “Salesperson X average performer”.
  • State the process that will be used, and by whom, to address any issues.

You may want to consider adding a frequently asked questions (FAQ) section at the end of the written plan description.

2) Create a Short Video to Support the Plan’s Introduction. With the increasing popularity of online videos and the shrinking of attention spans, an engaging two or three minute video can deliver the elements of your incentive plan in a compelling way.

For example, in the video the company’s president could briefly state why the plan has changed, while the vice president of sales could highlight the new plan’s components and how they align with the company’s strategy. A sales administration manager could then state the target earnings opportunity and payout frequency and refer the viewer to the summary plan description for further details.

3) Anticipate Resistance and be Prepared to Counter Challenges. Our experience shows that it is very likely that an individual or a group will resist the proposed changes to your sales incentive plan. For example, a star salesperson may see the need for plan adjustments, yet still feel anxiety about the changes. Anticipate resistance and be proactive. In this case, meeting in advance with your star salesperson may offset objections during your official presentation.

Contact Us
To learn more or discuss your sales compensation concerns, please contact Tim Weizer at tjweizer@gmail.com (phone 312-479-6411) or Neil Lappley at nlappley@lappley.com.

With unemployment at low levels and the economy continuing to expand, the need for compensation transparency is at an all-time high. Increasingly, employees are also making more demands for visibility into their rewards programs. If your employees aren’t asking directly for this transparency, they are likely seeking information elsewhere from peers, for example, or through websites offering compensation data.

The key to transparency is communication from the management team. However, managers at most organizations admit they struggle with how to explain the factors driving the company’s compensation decisions.

Employee Pay Perceptions

When employees believe they are paid fairly and equitably, they are more likely to stay with their current jobs and be more engaged in their work. However, a 2015 survey by compensation research firm PayScale shows there is often a wide gap between perceptions about pay and reality.

The survey of 71,000 employees found that most employees don’t understand how their compensation is determined or know if they’re paid fairly:

 

The survey results are clear: if compensation practices are not communicated, employees will not perceive the situation correctly or give the employer the benefit of the doubt.

Minding the Generation Gap

Laying the groundwork for a sound compensation communications plan begins with openness about how raises, incentives and promotions are handled. But changing workforce demographics may mean varying your communications approach and channels based on generational preferences:

  • Baby Boomers (Born: 1946-1964) – They tend to be longer-tenured employees with an attitude of loyalty and a strong work ethic. Boomers are used to pay discussions being private.
  • GenX (Born 1965-1979) – Having viewed the decline of employer commitment first-hand, they tend to be pessimistic about the workplace. They are conflicted in terms of openness to pay discussions. They’re willing to talk about the rationale of compensation, but less willing to talk about pay specifically.
  • Millennials (Born 1980-1995) – They are open with communication and are used to sharing information, believing there is little taboo in talking about pay. They tend to want fairness and career flexibility at work.
  • GenZ (Born 1996-Present) – Just entering the workforce, GenZ is comfortable with technology making it easier to communicate with them. However, we’re seeing the pendulum swinging back from the openness of millennials.

Millennials are now the largest group of employees. They are more open to compensation communications. This can be a problem for the other generation groups. But it is ultimately a good thing for everyone to be more open about pay as it will lead to greater trust which, in turn, will lead to higher engagement levels.

Consider Other Differentiators

There are other ways to think about grouping your workforce outside of thinking about generational differences. For instance, engineering employees may be less open about discussing pay, while sales teams may be more open. Or think of it in terms of job levels: entry-level employees may be very comfortable talking about compensation while senior managers may be less interested. Differences in how your employees prefer to get their information and the channels they are open to also influence your compensation communication strategy.

Are Your Managers Ready to Talk About Compensation?

According to PayScale, only about 19% of workers at organizations feel confident in their managers’ ability to talk about compensation. At the same time, managers are unlikely to recognize when an employee is feeling underappreciated. If an open dialogue is not developed and maintained, your company is more likely to experience loss of engagement, lower productivity and turnover.

We will return to the topic of compensation communication in our next Compensation Alert and look at how managers can improve their communications about pay to promote greater understanding of workplace compensation policies and practices. In the meantime, feel free to contact me about pay issues you are facing. I can be reached at nlappley@lappley.com or (847) 921-2812.

Last June in our Compensation Alert, we discussed how to develop a compensation strategy. As year-end compensation planning approaches for many companies, we think this topic is timely and worth revisiting with updates to address current trends.

Compensation strategy is part of a company’s human resource strategy and should be integrated with all other elements of human resource planning. A compensation strategy—a formal, written statement capturing the organization’s views and approach to compensation—serves as a guide and touchstone when designing new HR programs or evaluating existing ones. In addition, a clear compensation strategy lays a foundation for communication transparency when giving employees the rationale behind pay and benefit decisions.

Compensation Strategy Planning Elements

Like every strategy guiding your business, your compensation strategy should align with your business priorities.

Here are six elements to guide you through the design process:

  1. Gather Information: Obtain information and perspectives from your stakeholders, including directors, executives, managers, employees and customers. Take a close look at external and internal factors having a direct and indirect impact on your pay strategy. External factors include trends in supply and demand for talent, your relationships with your customers and challenges you are having in the current marketplace. Internal factors include your company’s business culture, values and strategic initiatives, as well as the core competencies of your current and future employees.
  2. Business Lifecycle: Consider your organization’s business strategy and human resource strategy, as well as where your business may be in its lifecycle.
    • Inception Phase – At this stage cash is tight and organizational structures and systems are informal.
    • Growth Phase – Here cash is tied up in growth; often developing the HR infrastructure becomes critical during this stage.
    • Maturity Phase – Mature organizations have cash and organizational structures are in place.
  3. Consider Demographics: Early career employees may need different incentives than those further along in their work lives. For instance, entry level employees may be willing to accept lower base wages in exchange for larger cash incentives or professional development opportunities. Employees nearing retirement may be willing to trade some amount of pay for greater medical and retirement benefits.
  4. Benchmarking: Gather information on salaries and wages so you understand how your organization stacks up against competitors and where your pay is relative to market rates. This approach involves understanding an organization’s relative positioning, but not necessarily blindly following. It also considers the economics of the business, so you can decide what’s best for the organization.
  5. Test Initial Strategy: Develop an initial strategy statement, then share it for feedback from stakeholders. When evaluating your compensation strategy, make sure it is equitable, fair, fiscally sound, legally compliant and provides a framework to effectively communicate with employees.
  6. Revise as Needed: Once you have implemented your compensation strategy, monitor and evaluate its internal impact – pros and cons – making changes as warranted. In addition, adapt your strategy to changes in the external business environment while keeping its intrinsic value.

How Competitive Do You Need to Be?

Understanding competitiveness begins by defining the markets where your organization competes for talent and business. Does your company recruit talent on a local, regional, national or global basis? Gather relevant salary data so that you can adjust your compensation strategy based on geographic differences in pay. Some industries, occupations and job levels, too, may be more competitive than others.

Establishing a market competitiveness target is a key element of an organization’s compensation strategy. Does your company plan to pay at, above or below market for the jobs in your portfolio? Based on your analysis, you’ll need to decide if you want to lead, lag or match the market.

For example, if you are currently paying below market median, your reputation is solid, business is good, or talent is plentiful, you may want to continue that approach. But if you currently have great employees and recruit only the best, need skills in short supply, are in a less desirable geography or the cost of living is high, you may want to target above the market median. These and other considerations must be weighed when developing your salary structure.

What Should be Rewarded?

Your compensation strategy should be tailored to meet your organization’s unique needs and circumstances. Most compensation strategies include:

  • Base salary has an important role in compensating employees as it establishes ongoing job worth and reflects employee performance. When deciding how wide to make salary ranges, make sure there is a clear purpose for each segment in the range. Also consider how you expect employees to move through the salary range as they advance in the organization.
  • Annual incentives are meant to reward annual performance. Once you determine who will participate in the incentive program and what the incentive opportunity will be, set performance measures and a feedback schedule so everyone is on track. Include financial and performance measures for both the operating company and supporting business units.
  • Long-term incentives, in contrast, are meant to reward a longer performance cycle and typically are part of an executive compensation program. The timeframe for these incentives is typically two-to-five years. Reward systems establish forward-looking performance conditions and include cash and equity.

What motivates employees can differ greatly, so use a mix of rewards.

In Summary

How your company spends its compensation dollars – often an employer’s largest expense – deserves a strategic plan aligned with business goals. In today’s rapidly changing employment environment, it’s time to leverage the most important asset your organization has: its people.

Contact Us

Please contact me at nlappley@lapppley.com or (847) 864-8979 to discuss any comments or questions you may have about how to develop a compensation strategy. Feel free to forward this email to anyone else who may be interested.

A lot has been written about the interests, attitudes, and behaviors of Millennials (those born between 1981 and 1996). Among the facts that have been reported, primarily by the Gallup organization, these stand out:

  • Millennials will account for 50 percent of the US workforce by the year 2020.
  • Only 50 percent plan to be with their current company one year from now.
  • Only 29 percent are engaged at work.
  • At the 2016 Sales Compensation Conference, research done by Michael Ahearne, a professor at the University of Houston, suggests that Millennial salespeople are more interested in a leveraged compensation plan than their traditional peers

Based on our research and experience, we believe the following should guide the treatment of Millennials:

  • Millennials want to grow in a job that fits them.
  • They enjoy more periodic feedback than other generations.
  • They have a firm desire to be considered for a “fast track” promotion if their performance warrants.
  • Millennial salespeople want to be rewarded for their results.

All of this signals the importance of rethinking how to recognize and reward superior performance of an increasing population of Millennials in the sales organization.

So, what are some of the ways to consider?

Possible Approaches

Following are four possible approaches. Understandably, careful analysis will need to be undertaken to ensure any new approach or program can be aligned with a company’s overall culture and reward strategies.

  1. Career Pathing. To better retain Millennials offer individual career growth paths that spell out how a salesperson of any age can advance in the organization. According to reports, Credit Suisse, the international financial services company, did just that and believes that its 1% increase in retention can save $75 to $100 million a year.
  2. Outstanding Achievement Award. For all salespeople who clearly demonstrate stellar achievement, for example candidates for “The President’s Club”, offer them a new, end-of-year special bonus that can be used to support their outside-work deep interest. Examples could be a local community group (Boys & Girls Club) or the local alumni chapter of the college they attended.
  3. Enhanced Engagement Opportunities. To better engage Millennial salespeople, offer all employees some new or enhanced opportunities to participate with company executives. One example is providing structured networking with senior company executives (Sales VP, CFO, CMO, VP Operations, VP HR). Video chats, such as an “Ask the CEO” forum, might also be considered.
  4. More leverage in the Compensation Plan. Move, for example, from an 80/20 compensation plan for sales people to a 70/30 plan.

Survey Your Salesforce

Not sure your Sales Compensation Plan or talent management programs need a major change to accommodate Millennial salespeople?

Consider evaluating where you stand today by conducting a Salesforce Survey with the entire salesforce asking for the recipient’s age category and opinions on a number of topics, e.g., career pathing, training, current compensation pros and cons, and incentive leverage. The survey results can offer a baseline snapshot of today’s situation. From there, discussions can be started to lay a forward path.

If you would like to discuss this topic or your other salesforce compensation needs further, please contact Tim Weizer at tim@salescne.com or 312-479-6411 or Neil at nlappley@lappley.com. Also feel free to share this article with anyone who might be interested.