Tuesday, October 11, 2016

Concerns Surrounding Non-Profit Executive Compensation

Executive compensation is a natural concern of many in the non-profit sector. A 2011 report from the Chronicle of Philanthropy highlighted that the median pay of executives in 132 surveyed charities and foundations increased 3.8% over the prior year. Three years later, Charity Navigator reported that the typical charity CEO’s compensation had increased just 2.6% over the prior year. The Charity Navigator report surmises that raises have been modest since the recession. However, the report also acknowledges that despite this overall trend, there are some non-profit leaders that earn “excessive” wages of more than $1 million. Factors involved in increasing executive pay levels include the following:
  • Greater competition among non-profits to attract top talent.
  • Difficultly in retaining staff, and a lack of internal candidates for some critical positions. 
  • Nonprofits’ desires to lure corporate executives, as the finances of non-profits have become subject to greater government scrutiny.
In addition to higher pay, some non-profits compensate for the lack of stock options and other corporate extras in the sector by allowing flexible work time. Others even pay bonuses, once rare at non-profits.

In recent years, the Internal Revenue Service has begun examining executive compensation at non-profits with an eye toward uncovering potential abuse.

Understanding the need to recruit and retain quality staff has added to the concern over how to structure compensation policies & programs to be fair and competitive, without crossing the fiscally abusive line. Incentive plans and other innovative compensation & human resources practices are becoming critical elements in the organizational strategy of many non-profit organizations.

A previous Astronology® highlighted details to consider when developing a compensation plan for non-profit executives:

1. Rationale for developing plans

Surveyed non-profits indicated multiple reasons for creating new programs. More than half of the participants indicated their program objectives included the following:
  • improve morale and/or employee relations;
  • improve employee retention;
  • link pay to performance / improve employee performance; and
  • become more competitive in total compensation (i.e., cash compensation, recognition, and benefits).
2. Types of plans and performance measures

The most popular types of cash compensation and recognition programs implemented by the participants were bonuses, incentives, and non-cash recognition programs.

Productivity, financial, and quality measures were the performance criteria most often used as the basis for the respondents’ compensation awards under a variety of programs.

3. Budget and award amounts

The average variable compensation award payouts typically ranged from 20% - 30% of salary. In some organizations, the targeted payouts ranged from 10% - 20% of the salary range midpoint.

Interestingly, in Astron’s confidential database of non-profit organizations, target incentives levels are as follows:
  • Staff / Non-Management: 5% - 10%
  • Supervisory Staff: 5% - 15%
  • Middle Management: 10% - 20%
  • Senior Management: 15% - 30%
  • Executive Management: 20% - 40%
  • CEO: 30% - 50%
Beyond these details, following are guidelines to consider when implementing a new compensation plan:

1. Nonprofit organizations should first conduct an assessment to determine the appropriateness of innovative compensation to their cultures and organizations. This assessment should focus on the following:
  • the objectives to be achieved through implementing an innovative compensation program,
  • what motivates staff,
  • the opinions and views of members, constituents, & volunteer leaders, and
  • the financial resources available.
2. Any innovative compensation program should be viewed as part of a total approach to compensation and carefully integrated into the design of that program. A market analysis of current compensation levels related to the jobs in the organization should be conducted in the early stages of or prior to developing a program.

3. The innovative compensation program, especially management incentive programs that provide significant opportunities for financial rewards, should be clearly tied to performance. The program should demonstrate the achievement of overall organization objectives in finance, program, development, client service, membership, public affairs, government relations, community relations, and any other areas deemed important to the organization.

4. Organizations should consider pilot testing innovative compensation programs on a selected group of staff before introducing the programs to all staff. More than one innovative compensation program should be considered, especially in larger organizations. Many non-profit organizations have implemented at least two types of programs.

5. Innovative compensation programs should be well communicated to staff and used as a vehicle to announce the success of employees, teams, and the organization.

Is non-profit executive pay a concern for your organization? Is there some form of transparency in place to alleviate those concerns? Are you considering changing or have you recently changed your compensation plan? Please share your thoughts with Astronology®. We may feature your response in a future article!

Tuesday, September 27, 2016

Work Stoppage in the 21st Century

What do the NFL, the cereal brand Kellogg’s, and Long Island University Brooklyn Campus (LIU-Brooklyn) have in common? They all have dealt with employee lockouts in the last five years. Given the September 14th end to the LIU-Brooklyn faculty lockout, in this issue of Astronology® we discuss lockouts and work stoppage in general.

Strike vs. Lockout…what’s the difference?
Both lockouts and strikes are forms of work stoppage. However, the ways they develop are different. Strikes occur when employees decide as a group to stop working during a labor dispute. In some cases, striking can be illegal. For instance, certain labor contracts, as well as certain public service employees, are not allowed to strike. An exception to this rule could be if the job has hazardous work conditions. Oftentimes, the National Labor Relations Board (NLRB) determines whether a strike is lawful.

Strikers fall under two categories. The objectives of “economic strikers” are better wages, hours, and/or working conditions. The objectives of “unfair labor practice strikers” involve rectifying unfair labor practice(s) allegedly committed by the employer.

Lockouts occur when management decides that employees should stop working during a labor dispute. In some instances, employers will hire replacement workers, even though locked out employees are entitled to their jobs after the lockout ends. The NLRB lists a number of things employers can do with respect to lockouts and strikes, including the following:
  • Lock out employees defensively – provided it is not to interfere with or defeat union activity.
  • Lock out employees defensively – in response to a “whipsaw” strike.
  • Lock out employees offensively – if the sole purpose is to “bring economic pressure to bear in support of a legitimate bargaining position.”
  • Hire temporary replacements to continue operations during a strike or lawful lockout.
  • Hire permanent replacements to continue operations during an economic strike.
How often do work stoppages occur? According to the Bureau of Labor Statistics (BLS), there were only 12 major strikes and lockouts in 2015. These stoppages idled 47,000 workers. The lowest annual report was a total of five major strikes and lockouts back in 2009.

Lockouts in the Education Field

In the case of LIU-Brooklyn, the faculty lockout was an unprecedented move in the higher education field. SHRM mentioned in an online article that these lockouts rarely occur for a number of reasons. For instance, it is speculated that the current NLRB is more prone than prior boards to rule against employers. Publicized lockouts also can give the employer a negative label in the eyes of the public. In the case of the higher education sector, where the needs of the student are directly linked to the quality of the staff, if the staff isn’t happy, students aren’t either. For the business and advertising aspects of higher education, this is bad publicity, and bad for business.

LIU-Brooklyn initiated its faculty lockout in order to avoid a strike, since previous negotiations have resulted in strike votes. The faculty lockout, which started September 2nd, lasted until September 14, 2016. The solution reached? LIU administration extended the faculty members’ previous contracts until May 2017, and will reimburse healthcare costs incurred during the time period of the lockout for the affected 400 professors.

What of the other companies mentioned in the beginning of this article? Back in May 2015, Kellogg’s was found guilty of unlawfully locking out 200 employees for nine months at its Memphis, Tennessee cereal plant. Kellogg’s had to bargain with the union, offer to reinstate any locked out workers who had not returned to work, and give back pay and benefits lost during the lockout. For the NFL, in 2011 the 18 week, four day lockout ended with NFL owners approving a 10 year bargaining collective agreement that was later ratified by NFL players.

Has your organization ever faced a form of work stoppage? How was it handled? Share your thoughts with Astronology® and we may feature your response in a future article!

Tuesday, September 13, 2016

Requiring Noncompetes:Are You Overdoing It?

By guest author: pmphrblog for Portnoy, Messinger, Pearl & Associates, Inc. Tri-State area human resources and labor relations consulting firm.

Does your business require all new hires to sign a noncompete agreement? Are those agreements enforceable? The practice of requiring all employees -- including low-level staff -- to sign noncompetes has come under fire recently, with federal and state both targeting the issue.

The New York Attorney General’s office recently settled cases it had brought against Law 360, a legal news service, and the sandwich chain Jimmy John’s. Both Law 360 and Jimmy John’s Sandwiches have had a practice of requiring low-level employees to sign noncompetes. At Law 360, these employees included journalists fresh out of college; at Jimmy Johns they included sandwich makers. The Attorney General has stated, “Unless an individual has highly unique skills or access to trade secrets, non-compete clauses have no place in a worker’s employment contract.”

Furthermore, in May the White House issued a report on the use of noncompetes. The report asserts that noncompetes can depress wages and reduce workers’ mobility. The report also notes that employees are often asked to sign a noncompete only after they have already accepted the job and declined other offers, at which point they have little leverage. Further, the report expressed concern over the increasing number of lawsuits brought by employers to enforce noncompetes in recent years.

Notwithstanding these concerns, there are circumstances where noncompetes are indeed necessary for protecting an employer’s proprietary assets. In New York and many other states, noncompetes are enforceable, if reasonable in time and geographic scope, where necessary to prevent disclosure of trade secrets or confidential customer information, or where the employee’s services are deemed special or unique.

Accordingly, when considering requiring an employee to sign a noncompete, employers should ask themselves: If this employee were to leave and joins a competitor, in what ways might our business be harmed? Are we concerned she would use our proprietary information for the benefit of the competitor? Or is our primary concern that she might take our clients with her, or recruit our other employees to join her? Or is it simply that we don’t want to lose her as an employee, period?

If the employee will have no real access to trade secrets, business strategies, plans, or similar proprietary information, then there is probably no need for a noncompete. If the main concern is that he/she will poach clients or other employees, this can be addressed more efficiently with a nonsolicitation agreement. If the employer is simply using noncompetes as a retention device---i.e., trying to discourage employees from leaving by limiting their ability to find new jobs---it would be well-advised to consider other, more effective methods of employee retention.

There is no doubt that noncompetes have a place in the business world. But they should be used thoughtfully, and when actually needed. Requiring everyone from the CEO to the mail room clerk to sign a noncompete is neither necessary nor a good business practice. For guidance on the use of noncompetes, please contract an HR professional at Portnoy, Messinger & Pearl.

This article is intended for general information only and should not be construed as legal advice.

For more information on labor relations please visit us at: 

http://www.pmphr.com/ or email: info@pmpHR.com.

About Portnoy, Messinger, Pearl and Associates:
Portnoy, Messinger, Pearl and Associates, Inc. (PMP), the oldest labor relations consulting firm representing management on Long Island, was founded in 1964 by former union organizer and worker’s rights advocate, Murray W. Portnoy. Initially, Murray offered human resource consulting and union contract negotiating services to a handful of clients. Today PMP has a full staff of experienced and talented human resources and labor relations consultants, labor and employment attorneys, and administrative personnel. Murray Portnoy’s values and vision remain at the core of PMP’s mission and principles.

Tuesday, August 30, 2016

2017 Compensation Budgeting Outlook

Election years bring about a certain level of anxiety and unpredictability in terms of the results’ impact on the U.S. economy and compensation budget planning. So as we collectively begin the annual ritual of compensation budgeting, let’s start with a quick analysis of the projected economic climate for 2017.

The U.S. Economic Outlook for 2017
In a recent report, the Congressional Budget Office (www.cbo.gov) stated the following:

“Under the assumption that current laws governing federal taxes and spending will generally remain in place, the agency projects that real GDP will grow by 2.7 percent in 2017, as measured by the change from the fourth quarter of the previous year. According to CBO’s projections, the unemployment rate will fall to 5.0 percent in the fourth quarter of 2017. As slack in the labor market diminishes and firms must increasingly compete for a shrinking pool of unemployed or underemployed workers, growth in hourly compensation is expected to pick up.”

Of note is the CBO’s differing projection on the unemployment rate vis-à-vis figures from the US Department of Labor (DOL). As of August 4, 2016, the DOL reports the current US unemployment rate is 4.9%. The difference in statistics between the CBO and DOL stems from their calculation methodologies. The CBO figure is based overall economic trends and climate, while the DOL’s figure is based on the percent of individuals still looking for a job. As such, CBO is considered more conservative and realistic.

The key point here is that if unemployment continues to drop, the labor pool will shrink. This shrinkage will place additional pressure on organizations to compete for talent. This assessment will be especially true in recruiting and retaining “mission critical” positons. Thus, compensation budgeting will become more decentralized, making compensation budgets more difficult to predict in the future.

A U.S. and Canada Perceptive
The Economic Research Institute (www.erieri.com) has published “Planning Global Compensation Budgets for 2017.” From ERI:

“Salary increases are projected to remain stable at 3.0% in the United States and Canada from 2016 to 2017. Minimal change is also expected in unemployment over the same time period with Canada increasing slightly from 7.3% to 7.4%, and the United States decreasing from 4.9% to 4.8%.”

U.S. 2017 Compensation Budgeting – A 30,000 Foot Review

In recent months Astron Solutions consultants reviewed annual compensation budget planning survey results from a number of associations and consulting firms. The following is a brief summary from two of the premier organizations in this area: WorldatWork (www.worldatwork.org) and The Conference Board (www.conference-board.org).

WorldatWork: Total U.S. Salary Budget Increases by Employee Category

Source: WorldatWork 2016-2017 Salary Budget Survey

The Conference Board:
The Conference Board is projecting that median U.S. salary increase budgets for 2017 will be 3 percent. This is the same as the median increase The Conference Board has reported for the previous six years. The Conference Board expects this 3 percent salary increase to hold steady across all employment categories (nonexempt hourly, nonexempt salaried, exempt, and executive), again equal to actual 2016 increases.

Unknown # 1 – Impact of Recent Minimum Wage Changes

The push for the $15.00 national minimum wage is starting to appear in various states across the country. This contiunues to be a highly debated issue with a dramatic impact on compensation budgeting. However, this push often is not reflected in general compensation budgeting surveys. Increases in the minimum wage have a domino effect in setting formal pay ranges and often create compression in employee pay rates. The compression, in turn, requires additional compensation adjustments to effectively address. Here are a few perspectives to consider on this hot compensation topic. Please keep in mind that while our review of the matter takes a national perspective, be sure to check your state and local Departments of Labor for the latest minimum wage requirements in those jurisdictions.

1. Impact on Nonprofit Organizations
According to the Non Profit Times (www.nonprofittimes.com), "some 92 percent of non-profit leaders claim that their organizations’ financial sustainability would be in jeopardy due to minimum wage increases. In a recent survey, 30 percent responded that employee benefits would be reduced due to minimum wage increases. According to New York Council of Nonprofits CEO Doug Sauer, “you can raise the wage, but if government doesn’t want to pay it and donors say ‘we want more bang for the buck,’ it’s not a stable workforce. We’re squeezed.” A bump in government contracts would not finance a minimum wage increase for many agencies. Fundraising for increased operating costs such as employee wages is not a realistic target."

 2. Impact on the Economy
In a recent survey conducted by the Employment Policies Institute (www.epionline.org), "166 economists provided feedback on the economic impact of minimum wage increases. Nearly three-quarters of these US-based economists oppose a federal minimum wage of $15.00 per hour. 

The majority of surveyed economists believe a $15.00 per hour minimum wage will have negative effects on youth employment levels (83%), adult employment levels (52%), and the number of jobs available (76%). 

When economists were asked what effect a $15.00 per hour minimum wage will have on the skill level of entry-level positions, 8 out of 10 economists (80%) believe employers will hire entry-level positions with greater skills. 

A majority of surveyed economists (71%) believe that the Earned Income Tax Credit (EITC) is a very efficient way to address the income needs of poor families. Only five percent believe a $15.00 per hour minimum wage would be very efficient in addressing this need."

Unknown # 2 – Impact of FLSA Minimum Salary Threshold Changes for Exempt Status

Sibson Consulting (www.sibson.com) has identified two areas of concern with the recently approved changes in FLSA exemption salary levels.

1. Financial. These changes will impact a variety of areas, including the following:

  • Salary increases for affected exempt employees to meet or exceed the proposed salary level  Overtime payments to newly classified non-exempt employees 
  • Hiring of additional staff due to financial and resource constraints 
  • Costs associated with layoffs for certain employees 
  • Benefit costs given reclassification of employee jobs 
  • Salary adjustments to ensure internal equity and prevent wage compression
2. Employee Relations. The following considerations can result in decreased employee morale and increased employee turnover, leading to negative bottom line organizational impacts. 
  • Perceived loss of prestige and credibility following a change from exempt to non-exempt status
  • Changes in job: diminished job autonomy with loss of independent discretion and decision making, less flexibility in work hours, and decreased opportunity for career development or advancement
  • Change in level and type of benefits (e.g., vacation, tuition reimbursement)
  •  Reduction in merit-based compensation to offset FLSA adjustments
Final Thoughts
So where do we go from here? In general, compensation budgeting continues to remain flat, averaging 3% again for 2017. Aggressive minimum wage and FLSA salary requirement changes will have a “hidden” impact on compensation budgeting. These hidden impacts will create potential artificial salary adjustments and employee compression correction scenarios not accounted for in the standard compensation budgeting process. As such, proactive and progressive employers will continue to move to a decentralized compensation planning process. A decentralized compensation planning process means that “mission critical” positions will have higher compensation budgeting percentages than non-mission critical positons, sometimes as much as two times the typical projected compensation budget levels.