As we communicated in last month’s eNewsletter, salary increase budgets are expected to remain at 3 percent for 2017. Employers are turning to variable pay to reward employee performance.

The percentage of companies using variable pay vehicles, such as annual or quarterlypay-scale
incentives based on individual, team and organizational achievement, rose to 84 percent in 2016, reports WorldatWork in their most recent survey of its members. This number has been hovering around 80 for many years.

A combination of awards based on individual, business unit, and organizational performance continues to be the most prevalent type of variable pay program.
Types of Variable Pay Programs 
The percentage of participants who indicated that their organization uses all three, or just one or two, of these programs is shown below. Some employers offer multiple variable pay programs covering different employee groups.
•Combination of awards (organization/unit and individual): 70%
•Organization-wide awards: 28%
•Individual incentive awards: 23%
•Unit/strategic business awards: 17%
In deciding whether to offer a combination of variable pay programs or to provide awards only for business unit or individual performance, it is important to answer this question: What do we want to accomplish with our variable pay programs? In some organizations, different employee groups are motivated by different rewards strategies. In other cases, a company may have an overriding culture of winning or losing together, in which case a common incentive program for all employees will support that.
Also, employers should keep an eye on the practices of companies with which they compete for talent.
Variable Pay Program Budgets 
Most organizations that have a formalized incentive program budget, as it often includes sizeable cash expenses. Survey respondents differentiated their current and planned variable pay awards representing a percentage of base pay, by employee classification.
Nonexempt Nonexempt Exempt Officer/
Year Hourly (nonunion) Salaried Salaried Executive
2016 Projected
Percent Paid
5.00% 5.00% 11.80% 34.50%
2017 Projected
Percent Paid
 5.00%
5.00% 12.00%
35.00%
Companies striving to be known as an employer of choice often offer incentives at lower levels to attract better talent or to attract high performers at above market pay rates, which aids in retention. But always check with the objectives that you want to accomplish.
Contact Us
Please contact me at (847) 864-8979 or at nlappley@lappley.com to discuss variable pay programs.  And forward this email to anyone who may also be interested in these projections.
Projected 2017 Salary Increases [Survey Results]
According to recent surveys conducted by WorldatWork and the Hay Group division of Korn-Ferry, U.S. employees can expect to see a moderate 3 percent salary increase budget in 2017. This figure is consistent with actual pay increases ofsalary-increase 3 percent reported by surveyed companies in 2016. These projected and actual salary increases have remained nearly constant over the past several years. Likely this trend (or lack thereof) reflects employers’ consistent conservative increases in salary’s fixed costs.

There is also consistency across most employee groups in regard to salary increases. All employee groups – from clerical to executive – are indicating about a 3 percent median increase.

A 3 percent average salary increase does not mean all employees should expect to receive that number. Organizations at the 90th percentile report planning on a 3.5 percent average increase, while the 10th percentile is planning a 2 percent increase. Also, survey participants see top performers receiving between 1.5 times and 2 times the median salary increase. As a result, top performers could receive salary increase of 6 to 8 percent.

Economic Outlook

There has been upward pressure on wages, due to the lowest unemployment in seven years that many economists are calling near full employment. In addition, changes to FLSA regulations and minimum wage increases will likely add to pay increase pressures. Yet many organizations appear uncertain of their economic outlook. This coupled with relatively low inflation is causing many organizations to keep growth in fixed costs, such as salaries, in check.

Our recruiting and search friends are finding it increasingly hard to find and attract good talent. Companies should continue to be aware of compensation market trends as competitive situation can change quickly.

Industry Data

Industry specific salary increase budgeting has continued to grow and contract. Of particular note is a large fall in mining, quarrying, and oil and gas extraction to 1.3 percent in 2016, after leading all industries around a 4 percent level a few years ago. Reportedly, they will return to approximately 2.4 percent in 2017

Percentage of Employees Receiving Increases

Base salary increases are being awarded to 89 percent of employees in 2016 on average. Thus, most employees are receiving salary increases.

Promotional Increases

Promotional increases were awarded to 8 percent of employees in 2015, a small .1 percent increase from 2014. The size of the average 2015 promotional increase was 8.4 percent. In addition, the planned amount that organizations spend on promotional increases in 2016 is 1.5 percent of total base salaries.

 

Variable Pay

Organizations seem more willing to provide additional compensation through short- and long-term incentive programs. The percentage of organizations using variable pay rose to 84 percent in 2016. A combination of organization/unit success and individual performance continues to be the most prevalent type of variable pay program. In addition, employers are increasingly dependent on referral, sign-on, spot and retention bonuses as ways to reward employees.

Contact Us

Please contact me at (847) 864-8979 or at nlappley@lappley.com to discuss planned compensation actions for 2017 and forward this email to anyone who may also be interested in these projections.

The focus on sales compensation is understandable as selling is, by far, the most expensive part of strategy implementation for most companies.  Five times the expenditures on all media advertising; 20 times larger than the money spent on all online marketing and advertising in 2013.

Here are five areas to test your plan.  Focusing on these areas can help you determine whether you have problems.

#1.  READY…FIRE…AIM APPROACH marketing-strategy

In todays hurry-up world, quality often is not given enough emphasis over a quick answer.  A holistic approach is needed to ensure that proper time and thought are given to plan design and any potential unintended consequences. As one CEO remarked that the company took its time to ensure “…we didn’t have sales compensation becoming disconnected from the overall financial result of the business”. The CEO wanted to ensure that the company was paying for the right strategic results.

The basic premise is that a sales compensation plan does not exist in a vacuum…as illustrated in the graphic above.

#2. “ALL THE SAME” PERCENTAGE
sales-job-analysisSetting the same percentage of base salary as the incentive for target performance for all sales positions is often evidenced in plans.  Careful sales job analysis should be undertaken to properly reflect each position’s impact and influence on a sale.  This analysis then becomes an important part of determining the right pay mix per sales position.

#3.  TOO MANY MAX OUT
In this case, the design allows too many sales reps to max out on incentive earnings. This result can cause the CFO to worry about the inherent risk in the plan’s design or to “pushing” fourth quarter sales into the first quarter of next year.   While 60 percent of the sales force should achieve quota or above, a recent survey stated that only 4 percent, on average, maxed out.  If your result is significantly higher, then multiple analyses should be conducted to determine the reasons (e.g., Quota and territory design analyses).

#4.  TOO MANY MEASURES OR OBJECTIVES
While communicating management’s goals to the field, too many measures or objectives result in the measures receiving little or no attention.  Four should be the maximum number of incentive measures.  This statement is backed up by a recent Hay Group survey of 700 companies that reported 85 percent of respondents had 4 or fewer incentive measures. Also, any single incentive measure or objective accounting for less than 15 percent of the targeted incentive opportunity is simply wasted.

#5.  UNDUE OR EXCESSIVE RISK 
To quickly increase sales, a company may decide to provide a higher leverage of incentive to total cash or an uncapped incentive opportunity vs. the past design.  This action may produce significant risks in terms of cost control, uneven production scheduling, or even upset key customers due to delivery issues.

Contact Us
To learn more or discuss your sales compensation concerns, please contact Tim Weizer at timsalescne.com (phone 312.479.6411) or Neil Lappley at nlappley@lappley.com

When you think about traditional performance reviews, it was based on an employer-employee relationship that has radically changed. Years ago, most employees would wait anxiously for their annual meeting with their manager to find out how they were doing and if they mattered. This was the official validation that employees wanted and craved.

Up until that point, you were never really sure how those above you viewed your performance. It was a dynamic that created a dependent, subordinate relationship that clearly put the organization in control of your destiny.  Back in those days, you felt emotionally connected to your organization for long-term employment, security and stability.

Fast forward to the present, and we are in an era where employees are less concerned about a long-term relationship with their employer. Employees are more concerned about their own careers and doing work that helps them achieve what they hope to become. Today, there is no longer the emotional connection that puts the organization in control.
This is a significant change from 20 or 30 years ago, and in many ways healthier. What we have now is a dynamic that requires an open and honest exchange of expectations and feedback on a regular basis to ensure mutual success. There is a level of acknowledgement that more than ever, employees and organizations need each other to succeed. There needs to be an equal exchange of value and a defined upside for everyone. That requires a partnering relationship and not a dependent or subordinate relationship.
So what does that have to do with the annual performance review conversation between an employee and his or her manager? The fact is everything. The annual review is totally out of sync with what most employees expect in terms of feedback. It is also out of sync with how quickly everything is changing and what is required to remain competitive.
This means that performance management needs to be more rapid and real time.  Anything that happens once a year is DOA. Performance management needs to be much more frequent and an ongoing process. The focus needs to be on learning, coaching and, of course, being accountable.
Managers and employees need to operate as full partners to ensure everyone is successful. It’s not about ratings or rankings. The days of an organization doing the annual performance appraisal are numbered. We should all be grateful.
Contact Us
Performance evaluations are still a key component of your overall compensation program, now may be a good time to evaluate your plan and processes. Contact me at nlappley@lappley.com or call (847) 864-8979 and we can discuss your best options. Feel free to pass this along to other interested parties.

The United States Fair Labor Standards Act of 1938 requires that employees be provided overtime pay unless they qualify under one of the FLSA exemptions.  On Mayflsa-regs-graphic

  • Increase the minimum weekly salary to $913 ($47,476 annually) to be considered exempt.  The current limit was $455 per week or $23,660 annually.
  • Increase the highly compensated employee exemption total compensation to $134,004. The current threshold is  $100,000.
  • Establish a mechanism for an automatic update of salary limits and thresholds every three years.
  • Amend the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard level.

The effective date of this final rule is December 1, 2016.  Employers need to consider the many issues, decide on a course of action, and then have all programs and documented policies in place by this December date. Failure to be in compliance with the new requirements can result in significant employer liability. The changes outlined in the final rules will likely impact financial results, human resources, and information systems.

Consider the following questions:
1.Which employees will be affected?  Gather lists of employees that are currently classified as exempt and have annual salaries below $47,476.
2.What will your strategy be for those impacted?  Develop alternative strategies for those employees that are impacted.  The DOL website offers a general guide to various strategies.  Evaluate the various strategies and the impact changes will have (i.e. increase pay to the minimum, change status to non-exempt, budgets required to deliver pay increases, etc.)
3.How will these changes affect your employees?  Not all employees will view the changes as positive.  Many companies will need to decide whether supervisors who are changed to non-exempt will maintain managerial responsibilities.  Engaging with your employees to understand their issues and answering questions they may have will be appreciated and beneficial.
4.How will these changes impact your compensation and incentive planning and administration?  Take a look at your current salary structure and job slotting.  Increasing wages for employees in certain salary grades may create compression problems between grades.  Also, look closely at your nondiscretionary incentive and bonus payments to see if the amended salary basis test helps you satisfy the standard salary test.
Given the deadline of December 1 to have your company’s new programs, systems, and policies in place and communicated, consideration should be given to conduct a few mid-year reviews of programs that usually wait until year-end.  Getting a sense in mid-summer of what is working and what is not working can avoid a last-minute rush to renew a program that has early warning signs. Among these programs are:
– Executive annual bonus plans
– Middle management annual bonus plans
– Salesforce incentive plans
Contact Us
Simply reply “Let’s Discuss” to this email if you would like to discuss your FLSA compensation issues or wish assistance with a mid-year review.  Please feel free to contact Tim Weizer at (312) 479-6411 or tim@salescne.com or Neil Lappley at (847) 864-8979 or nlappley@lappley.com.  Please also forward this email to anyone you feel will be interested.

When we have the opportunity to talk with executives and managers about their compensation programs, it can be surprising how many don’t understand the complete picture. While they are usually well-versed in the plan mechanics, such as metrics and targets, they are often in the dark when it comes to the broader rationale behind the […]

A recent client engagement underscored the need and importance of using an online tool in reviewing a sales incentive plan and making recommendations for improvement.

The company is a middle market company located in the Midwest.  It offered the B2B markets a high quality and premium priced product line.  In recent years, there were multiple changes in the sales leadership and several changes to the design of the sales incentive plans.

The primary issue was that while sales revenues had increased 7.5 percent in 2015, the sales incentive payout was more than 200 percent of the previous year. The company needed to implement a sales incentive program for the long term that also fit their immediate needs.

The Approach 

The six-step approach we used is summarized below. Note that in Step 1, we included the use of an online salesforce effectiveness survey to solicit the opinions of both sales associates and perceptions of the senior leadership team of the company.

Step 1: Plan and gather data; use salesforce survey

Step 2: Conduct market benchmarking analysis

Step 3: Interview leadership team

Step 4: Interview selected sales team associates

Step 5: Develop recommendations and refine and specify plan details

Step 6: Present recommendations and deliver final report

The survey itself offered many fundamental benefits:

  • Topical. Contains questions on important topics including: product quality, marketing efforts, quota setting, sales associate training, sales strategy clarity, incentive earnings potential, and time allocation (now and should be).
  • Inclusive.  Able to get input from all the sales associates, rather than from selected interviews.
  • Comparative. Time allocation results compared to overall benchmarks.
  • Quick. It could be completed within 10 minutes.
  • Anonymous.  Participant asked to check off whether he or she was a sales associate or executive.

Survey Results and Their Role in The Recommendation

A few important findings follow:

  • A reality gap exists.  Except for product quality and sales associate proficiency, there was little agreement between the ratings by the sales associates compared to those by the leadership team.  A gap is not unusual. This gap, however, was wider than we have seen in many uses of this tool.
  • Sales Associates view their incentive plan as moderately fair, motivating, and competitive to the external market.
  • The allocation of time for travel was a major differentiator.  Sales associates said they should travel 24 percent of the time, while the executives felt that only 5 percent should be needed.
The online salesforce effectiveness tool’s results were helpful in three ways:  First, the role of the company’s key sales position was not reflected properly in the incentive plan design resulting in the pay mix having too much leverage vs. the position’s role. Second, account retention was seriously underweighted vs. new account acquisition. Third, the company’s limited marketing efforts were insufficient drivers in the selling process.

The next time when conducting a sales incentive plan review or redesign consider using a salesforce effectiveness survey. You will be surprised at your important discoveries or just pleased with confirming data. Both outcomes will increase design effectiveness and improve your sales incentive plan.

Contact Us

We welcome your feedback on our Salesforce Alert eNewsletters and would like to talk with you further regarding your salesforce experience and input. Please feel free to contact Tim Weizer at (312) 479-6411 or tim@salescne.com or Neil Lappley at (847) 864-8979 or nlappley@lappley.com.

We argued in our February Compensation Alert eNewsletter that hiring and paying women was not only the right course, but data and common sense reasoning suggest that it’s simply good business. To underline that topic, this month’s Compensation Alert summarizes a survey reported in the Harvard Business Review regarding why women in their early 30s are leaving their group-of-professional-womencompanies.

Organization leaders report that women are leaving primarily because of flexibility needs and family demands. Women in their 30s disagree.

A recent global survey by ICEDR revealed that leaders believe that the majority of women around the age of 30 leave because they are struggling to balance work and life or planning to have children. Whereas men leave because of compensation. However, according to women themselves–and in sharp contrast to the perceptions of their leaders, the primary factor influencing a woman’s decision to leave an organization is pay. In fact, women are actually more likely to leave because of compensation than men.

To underline the desire for fair pay for women, a survey conducted by Crain’s Chicago Business and an executive women’s group, the Chicago network found what women consider most important deciding whether to stay or leave a job is pay.

Not only are women’s reasons for leaving misunderstood, differences between women and men are overstated. The four top reasons 30-something women and men leave organizations are identical, if in a different order.

 

The survey research comes down to two simple findings. First, women care about pay. Second, women and men leave organizations for similar reasons. Based on these two conclusions, here are several actions that organizations can take:

Do your homework: Analyze job titles and grades or levels with significant populations of both men and women. Determine if there is a bias.  If there is, develop a data-driven plan based on your findings.

Ask, don’t assume: Instead of talking about women’s needs, talk with them. Ask women what are their needs and wants. Then develop a plan to address the results of the study.

Address challenges beyond family and flexibility: While options for flexibility and work-life balance are important, the bottom line is that motherhood is not the primary reason that talented women are leaving organizations. Focusing retention strategies on this alone, without also considering pay and compensation fairness, will ultimately jeopardize retention and advancement efforts.

Propose women’s strategies as broader talent strategies: It is good news for organization leaders that gender appears to have little impact on an individual’s reasons for leaving an organization. There is less a need to segment and complicate talent strategies by gender. Instead, create strategies that address the desires of both women and men.

There is a disconnect between current talent retention strategies and the desires of top female talent. While work-life balance, flexibility and family are important, they are not the only–or even primary–reasons women leave companies. With men and women expressing common concerns about why they leave jobs, leaders have the opportunity to retain and advance top talent, both male and female, by focusing on common priorities: pay and fair compensation.

 

Contact Us

We welcome your feedback on our Compensation Alert eNewsletters. Please contact me at (847) 864-8979 or nlappley@lappley.com to discuss gender compensation issues or other topics of interest.

Companies today are managing more diverse workforces. Pay programs must be designed to attract, retain, motivate and engage employees who have very different pay preferences from employees even a decade ago. A recent study lead by Professor Dow Scott, Professor of Human resources at Loyola University Chicago, along with several other faculties at universities throughout the world, examined how employee characteristics are related to pay preferences.pay-pref-graphic

This Compensation Alert eNewsletter summarizes the results of the survey pertaining to U.S. employees. We will review characteristics such as gender, level of age and education, number of employee dependents, compensation differences, and capability and their effect on pay in the U.S.

The article authored by Professor Scott and his colleagues appeared in the most recent Compensation & Benefits Review. The original survey covered 1,077 respondents in seven countries.

Age

Prior research has found that older workers want more of their pay in benefits than do younger workers. Specifically, older workers prefer retirement programs and job security, whereas younger workers prefer time off, work/life balance and career development.

The recent study found that older workers preferred variable pay more than younger workers. It also found that younger workers favored more pay transparency than did older workers, which seems consistent with the willingness of younger workers to share information on social media.

Annual Pay

One might speculate that workers that are paid more would have the financial capacity to take more risks, and thus prefer variable pay. Participant responses do not confirm that hypothesis, however.  The only significant relationship with pay preferences that was found is a negative one between annual pay and pay transparency indicating that transparency is preferred by those with who make less money.

 

Education

Not surprising was the fact that education had a positive relationship with annual pay. While more educated survey respondents preferred pay differences based on capability and variable pay, they were not found to prefer pay transparency.

Number of Dependents

A strong preference for pay variability was found for survey participants who had more dependents.

Work Experience

No significant relationship was found between work experience and any of the pay preferences measured.

Gender

Prior researchers have found that men place more emphasis on extrinsic rewards, such as pay and rewards, than women. Women were found to prefer jobs with good coworker relationships, work/life balance and developmental opportunities. Men were found to prefer pay based on performance more than women. Women preferred skill and seniority-based pay systems.

Consistent with prior research, the study found that men prefer variable pay than women do.

 

Conclusions

Older survey participants with more education and more dependents had a strong preference for variable pay than did those who were younger, are less educated and had fewer dependents. Younger and lower paid participants preferred greater pay transparency. Pay differences that are based on capability were preferred by better-educated employees.

 

Contact Us

We welcome your feedback on our Compensation Alert eNewsletters. Please contact me at (847) 864-8979 or nlappley@lappley.com to discuss pay differences based upon employee characteristics or other topics of interest.

Equal pay for equal work is a hot business, political and social issue. While we have much work to do, it would be irresponsible not to point out that tremendous progress has been made. According to Pew Research, the estimated dollar gap in pay has narrowed from 36 cents in 1980 to 16 cents.

The gap remains too large, but we can not make a change based on moral grounds alone. Business leaders need to be aware that equal pay for equal work will boost their own organization’s bottom line.
As the father and grandfather of girls, I care deeply about this matter. I understand that there are great complexities involved with this issue. A CEO is measured by gains versus losses, and not on sentiment, particularly for public corporations where a CEO must answer to shareholders. It is critical to understand, however, that paying women equally does not have to come at the expense of profits.
It’s Not a Simple Problem 
Equal pay is a complex issue without a one-size-fits-all solution. By looking at the kinds of jobs women often go into – older women in lower-paying, part-time service jobs for example, compared to young women entering STEM fields – can give insights on where to stress advances. In fact, women, ages 16-34 who currently experience an 87.5 percent earnings ratio, are the most promising in closing the wage gap.
 Recent Studies Demonstrate Benefits
Here are three studies demonstrating why:
  1. An MIT professor reported in the Journal of Economics and Management Strategy that shifting from an all-male or all-female office to one split evenly along gender lines would increase revenue by 41 percent.
  2. A McKinsey & Company study found that companies in the top quartile for gender diversity are 15 percent more likely to generate financial performance above the national industry median.
  3. A Gallup Study of different business units of two companies in the retail and hospitality industries shows significant differences in revenues up 14 percent and net profit up 19 percent, based on the level of gender diversity in each business unit.
Beyond Numbers, Three Reasons
  1. Elicit varying viewpoints – When you diversify, you stimulate debate and receive fresh ideas and different perspectives.
  2. Tap into $20 trillion in worldwide spending by women – Women control a huge $20 trillion in global spending power. It would make sense for a business to court women’s buying habits. What better way to reach potential consumers than by having women employees who understand their spending habits.
  3. Attract top male and female talent – Employers of choice understand paying women equally fosters and promotes a healthy business environment. When businesses maintain an inclusive culture and pay structure that recognizes women’s workplace contributions, high performers are more likely to want to join the team. Millennials, who are expected to make up 75 percent of the workforce by 2025, are keen to work in an environment that embraces diversity.
Additional Pay Disclosures Proposed
Under a recent proposal by the Obama Administration, employers with over 100 employees may have to send the government more information about what they pay. The proposal is aimed at eliminating the gender pay gap. The 60-day notice period ends April 1, 2016.
Where Do We Go From Here
At the recent Davos Conference, CEOs from companies including Barclays, Cisco, eBay, and Marriott weighed in on men’s roles in increasing greater gender diversity in the workplace. As men make up 80 percent of executive ranks and even more than that at the CEO level, men have a unique role in growing women in the workplace. Hiring and paying women is not only the right course, but data and common sense reasoning suggest that it’s simply good for business.
Contact Us
We welcome your feedback on our Compensation Alert eNewsletters. Please contact me at (847) 864-8979 or nlappley@lappley.com to discuss gender equality or other topics of interest.