Wednesday, October 30, 2013

Is There Financial Literacy in Your Workplace?

It’s not difficult to see that some Americans make poor financial decisions. We’ve been bombarded with reports of the so-called sub-prime mortgage credit crisis--mostly because borrowers didn’t fully understand what they were getting into and the possible consequences. Depending where you are, you see ads for “car title loans,” Payday loans, and “refund advance loans” on your anticipated income tax refund. All of these incur, on an annual basis, astronomical interest rates, but are sold as putting cash in your pocket for “just a few dollars.” What about the person who accepts paying a $2.50 fee to withdraw $10 from an ATM once a week?

This situation has attracted the attention of high levels in our government. The Federal Reserve Bank of Kansas City has highlighted both the need for and the benefits of financial education conducted in the workplace. President Bush has recently formed an Advisory Council on Financial Literacy, appointing Janet Parker, SPHR, to the Council. Appointing the chair of SHRM to the Council clearly signals that the HR profession belongs in this national discussion. What is consistently seen as a tool to address the financial illiteracy concern is some sort of Financial Education in the Workplace.

Indeed, if financial education in the workplace is a part of the solution to this problem, HR professionals, as the stewards of employee education, will be in the forefront of the effort. Whether expressed as “financial literacy,” “financial education,” “financial stabilization,” or a catchy, easily-turned-into-an-acronym name (such as “Consolidated Approach Simplifying Handling Money, or “CASH Money”), employers on the leading edge of addressing this issue will become employers of choice.

What does your organization’s program look like? Is it truly literacy? Merely “education”? Voluntary brown-bag lunch-and-learn sessions? The minimum required by law (e.g., ERISA)? If this has been your program for a long time, and your employees are still in financial straits from poor decisions because today’s financial world is much more complicated than it was 10 or 20 years ago, don’t you think you need a change? After all, as the joke goes, doing the same thing over and over expecting a different outcome is akin to insanity.

So what does work? Let’s look at an allegory that you probably already have in place--your “health and wellness program.” It usually consists of health education, building an exercise plan, stopping smoking programs, and providing a time and place to exercise, sometimes at the workplace, sometimes a reduced membership fee at the gym. Change some of those words around and you have a financial wellness program: providing financial education, building a budget, stopping over-spending programs, and providing the access to real-world experts who can make the “financial exercise” actually pay off. As can be said, “learning about aerobics, studying the physiology of exercise, and knowing you should go to the gym” does not make one physically fit. You have to actually do the dieting, aerobics, workouts, that is, one must change one’s behavior to make it work.

The same is true for financial wellness. “Brown-bag seminars” alone will not get your employees on track with managing their financial affairs. It’s getting them to change financial behavior that does it. Sometimes it’s necessary to set up the conditions for your employees to get smarter and to change (for the better) what they do with their money. Setting them up for financial success can be as important to your organization as setting them up for professional success.

“Sure, but what’s in it for the organization?” Great question. If there’s a payoff, it makes even more sense to do it. The bottom line matters greatly. So, let’s turn the question around a bit. Is it worth something real to the organization if:

• Your payroll administrators have fewer garnishments and other legal actions to process?
• Your retention improves because employees return the loyalty shown “down” from management in helping them to take care of difficult matters?
• Your employees’ participation in tax-advantaged retirement plans (such as 401(k) plans) increases?
• Absenteeism is reduced, because your employees feel stronger loyalty and (surprisingly) are healthier?
 Employee theft (“shrinkage”) is reduced because of the improved loyalty?
• Overall productivity improves because employees are at their jobs more, instead of missing work to handle legal issues, for example?
• Overall productivity improves because employees are more focused on their work, instead of worrying about their financial woes?

The following two hyperlinks bring you to results from research conducted by independent researchers and The Federal Reserve Bank of Kansas City. Is there any reason to believe that your organization would be that much different from those in the research? Would you like to be known as an employer of choice because of all the personal, valuable, financial literacy you give to your employees, or just another organization who does only the mandatory one-hour lecture on the retirement plan?

Notice that this whole concept is independent of whether employees are exempt or non-exempt, professional, technical, skilled, or unskilled. Certainly, there is more for the organization in ascertaining if participants in the financial literacy benefit are likely to be retained--but success in the program can be a big motivator for those considering leaving the organization. It’s also independent of income level--six-figure-income employees can and do make poor financial decisions as well as entry-level ones, and often with bigger dollar consequences.

The research is done, and there’s plenty of it--improving the financial literacy of employees brings tangible benefit to both employers and employees. Why not do it in the workplace, where the link between the employer’s goals and the individual employee’s goals merge. The cutting edge is there. Will you help take your organization there?

Richard L. Virgilio, SPHR, is a retired Navy submarine Captain, a former study leader and analyst for The Johns Hopkins University Applied Physics Laboratory, and independent HR consultant. (rlvirgilioga@yahoo.com )

Monday, October 21, 2013

Privacy Goes Both Ways

In 2013 there are are lot of ways that people and companies purposefully violate their own privacy. People bare their lives on social media and are more than happy to publicly post information that probably should be kept private. Companies like to drop hints of private information to drum up interest in their next product release or to test out potential idea. It's not uncommon for both to be good things and bad things all at the same time.

But sometimes, it's not such a good thing. I started to think about this concept when reading this Deadspin article about whether athletes deserve more privacy in their injuries. It's a fair question as opponents' strategy can be altered and future earnings could be diminished, but with fantasy leagues and Vegas betting and 24/7 sports coverage, it's hard to keep it out of the news. But there are other concerns as the author of the article writes:
Professional athletes often have their privacy trampled on in the name of public discourse and the team press release. As a sports fan, I've never once stopped to think that this is strange or unfair. Yet as a physician, I'm familiar with the Health Insurance Portability and Accountability Act (HIPAA), and recognize the importance of the safeguards surrounding patient privacy. But professional teams often create their own HIPAA exemptions through the use of contractual waivers that allow team doctors and trainers to release private medical information to coaches, front office personnel, and owners. The waiver often allows the team to make certain injury information public, which makes many of us uncomfortable
It does and it doesn't. That athlete has the same ability to leave the team and talk about private details including signs and special plays and maybe even injury issues that may not be public.

This is not only in the sports world--employees sometimes violate the privacy of the company their leaving in the real world too. The Wall Street Journal has some gory details about that including the sad fact that nothing has to be printed out or written down anymore--as employees can just upload information to the cloud and be on their way. There is one way that HR Professionals can be ahead of the curve on this, however:

It's crucial that IT security managers communicate with the human-resources department so they are aware of pending layoffs or other personnel issues that might lead to employee departures. "The simplest thing companies can do is to make sure there is a good communication path between human resources and IT security staff," says Patrick Reidy, former chief information-security officer at the Federal Bureau of Investigation, who now holds the same post at Computer Sciences Corp.
Or else it could be your company's information that a former employee is posting on social media...and that could be really, really bad

Wednesday, October 16, 2013

Looking to 2014 – Trends in Compensation Planning

Writing an article on 2014 compensation trends in the midst of a government shutdown and its potential devastating impact on the economy is risky. The possibility of slipping into another recession in early 2014 is real, which would alter all current projections dramatically.  However, organizations cannot face the coming year “on hold.”  As such, we consider the future with a cautious eye to the news.
 
In planning for 2014, many data sources are available.  To facilitate our readers’ 2014 strategy development, the following is an executive summary of research, reprinted with permission, conducted by Diane Lustenader, SPHR of Lake Associates, Inc.
2013 Actual Data
US Bureau of Labor Statistics reports actual wage increases over prior 12 months of +2.5%; Surveys report actual 2013 merit increases averaged 2.8-2.9%, all industries.  Inflation YTD = 1.5% so real effect of wages for most employees = +1.0%; +0.7% for hourly workers.  Average structure increase in 2013 was + 2.0% based on review of surveys.  Merit differentiation in 2013 (raises based on performance) ranged from 0% to 9.0%.  The typical differentiation for top performers compared to average performers is a factor of 150% - 200% (i.e. if average raise = 2.9%, top performer average raise = 4.35%-5.8%).  The use of variable pay programs continues to trend upward as a tool in talent acquisition and retention.
2014 Merit Increase Average Forecasts
All Employee Groups, All Industries (merit + non-promotional increases) = 3.0%
Projections by Employee Classification - Production = 2.92%; Office, Clerical + Technical = 2.93%; Exempt = 2.96%; Management + Executives = 3.08%
Merit Differentiation for performance forecast from 0% to 4.6%, similar to 2013 forecast; note actual 2013 data trended higher for top performers
Hot Industries 2014 Oil & Gas 4.1%, Energy 3.5%, Entertainment 3.4%
Hot Jobs 2014 – medical, information technology
Lagging Industries 2014 – Not-for-Profit 2.4-2.8%, Public Administration 2.6%; Transportation & Warehousing 2.6%, Education 2.5%
2014 Promotional Pool Budget = 1.0-1.3%; average promotional raise forecast = +8.0%
2014 Salary Structure Adjustment = 2.1%
2 years, 2013 + 2014 combo adjustment = 4.1%
2013 Competitive Positioning – Most surveys predict that 2014 will be a year of significant flight risk for all employees, especially for top talent.  Approximately 86% of companies target the 50th percentile (P50) of the market for the competitive midpoint of their grades and ranges.  For officers/executives that number is 76% with 11% targeting the 75th percentile (P75).  Less than 5% of companies do not have a competitive positioning philosophy.
2014 CPI Forecast = +1.4%
Unemployment Forecast = 6.8% (much speculation abounds re. impact of government shutdown and debt ceiling debate on this number)

Let’s put this data into perspective.  The following tables are from the Congressional Budget Office, on budget surpluses and deficits since the year 2000, and the Consumer Price Index:
Table 1.1—SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS (–): 1789–2018
(in millions of dollars)
Year
Total
On-Budget
Off-Budget
Receipts
Outlays
Surplus or Deficit (–)
Receipts
Outlays
Surplus or Deficit (–)
Receipts
Outlays
Surplus or Deficit (–)
2000
2,025,191
1,788,950
236,241
1,544,607
1,458,185
86,422
480,584
330,765
149,819
2001
1,991,082
1,862,846
128,236
1,483,563
1,516,008
-32,445
507,519
346,838
160,681
2002
1,853,136
2,010,894
-157,758
1,337,815
1,655,232
-317,417
515,321
355,662
159,659
2003
1,782,314
2,159,899
-377,585
1,258,472
1,796,890
-538,418
523,842
363,009
160,833
2004
1,880,114
2,292,841
-412,727
1,345,369
1,913,330
-567,961
534,745
379,511
155,234
2005
2,153,611
2,471,957
-318,346
1,576,135
2,069,746
-493,611
577,476
402,211
175,265
2006
2,406,869
2,655,050
-248,181
1,798,487
2,232,981
-434,494
608,382
422,069
186,313
2007
2,567,985
2,728,686
-160,701
1,932,896
2,275,049
-342,153
635,089
453,637
181,452
2008
2,523,991
2,982,544
-458,553
1,865,945
2,507,793
-641,848
658,046
474,751
183,295
2009
2,104,989
3,517,677
-1,412,688
1,450,980
3,000,661
-1,549,681
654,009
517,016
136,993
2010
2,162,706
3,457,079
-1,294,373
1,531,019
2,902,397
-1,371,378
631,687
554,682
77,005
2011
2,303,466
3,603,059
-1,299,593
1,737,678
3,104,453
-1,366,775
565,788
498,606
67,182
2012
2,450,164
3,537,127
-1,086,963
1,880,663
3,029,539
-1,148,876
569,501
507,588
61,913
2013 estimate
2,712,045
3,684,947
-972,902
2,038,558
3,044,916
-1,006,358
673,487
640,031
33,456
2014 estimate
3,033,618
3,777,807
-744,189
2,294,478
3,062,692
-768,214
739,140
715,115
24,025
2015 estimate
3,331,685
3,908,157
-576,472
2,553,429
3,137,025
-583,596
778,256
771,132
7,124
2016 estimate
3,561,451
4,089,836
-528,385
2,735,891
3,260,397
-524,506
825,560
829,439
-3,879
2017 estimate
3,760,542
4,247,448
-486,906
2,891,827
3,370,159
-478,332
868,715
877,289
-8,574
2018 estimate
3,973,974
4,449,240
-475,266
3,056,516
3,516,155
-459,639
917,458
933,085
-15,627



The national deficit will continue to grow, placing more pressure on the need to increase government revenues.  Yet unemployment will continue to hover around 7%, meaning less tax revenue for the government to count on.  As we have heard in the news the past few weeks, “something has got to give.”  Inflation is holding steady at 2% during 2013 and is predicted to remain as such, or even drop in 2014.  The earlier fears of “hyper-inflation” in 2014 have dissipated. This leads us to a reality check against the data provided by the major consulting firms and compiled by Lake Associates.  Based on discussions with Astron Solutions clients across the country, from differing industry segments, the following can be said as we begin planning for 2014:
  • ·         Clients are focusing on a range of 2.8% - 3.2% in their 2014 compensation budget planning, with an average of 3%.  This includes all adjustments to compensation, such as general increases, as well as merit, promotional, and market adjustments.
  • ·         Clients are taking a hard look at their centralized compensation systems and moving towards more decentralized models. Such models allow them to make budget decisions based on families of jobs, and prioritize based on the mission critical nature of the positions. This can result in some positions having pay being frozen while others receive adjustments.  This also means increased pressure on developing alternative rewards programs for positions not included in the adjustment.
  • ·         Clients are starting to take a hard line in holding pay to the established maximum of the pay range with no adjustment, even a flat dollar amount, until the employee’s pay is below the maximum.  This requires establishing programs to better recognize the long-term employees beyond just a pin or recognition certificate, as this population will be most impacted.
  • ·         Clients are also aggressively establishing career progression programs that allow them to reduce the actual start rate below the market going rate.  The organizations then shift these dollars to fund training programs and recognition rewards for those who have mastered their job and exhibit high levels of competency and the ability to take on highly complex job tasks.
Compensation planning for the coming year is always a delicate balance. With the current economic uncertainty, however, formulating a strategy is difficult.  Employers effective at attracting and retaining key talent, however, will utilize multiple approaches that enable them to provide fiscally conservative total rewards packages while still engaging the human capital that drives the organization forward.

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