Compensation 104: Pay for Performance

Continuing our series of compensation topics, this week’s Astronology will review the basics of Pay for Performance programs. About 71% of organizations have a formal employee performance appraisal system. Linking pay to performance through that appraisal system raises questions: How flexible can an employee performance appraisal system be? How can HR ensure that the performance appraisal system is fair? Does compensation link with performance appraisal score? Should it?

A pay for performance program is used to reward employees based on measurements of their performance through an appraisal system. These programs are heavily used in many industries, including healthcare. Pilot studies in some hospitals found using a pay for performance program led to an increase in efficiency.  Major concerns with pay for performance in the healthcare industry, however, are system validity, patient and physician autonomy / privacy, and the increase of administrative responsibility. Concerns regarding validity and workload can apply in other industries as well.  In addition, one must determine if the reward for high performance is an adjustment to an employee’s base pay, or an incentive or bonus reward.  While salary adjustments may have limited flexibility, in many industries, these “incentive-based compensation” or “bonus plans” are easily adaptable to meet a variety of needs.

Many organizations find pay for performance programs an answer to the complex problem of keeping up with a competitive market. Here are a few of the advantages of using pay for performance:

• Pay for performance makes it clear to the employee what areas should receive priority attention.

• Employees motivated by financial rewards are driven to achieve high levels of performance.

• The organization enjoys high performance from its staff and rewards such performers appropriately.

Given that the performance appraisal is linked to an employee’s pay, it is essential that the performance appraisal is fair.  The following are some aspects to consider when designing or updating a performance appraisal system used in a pay for performance program:

-The relative balance between the base salary and performance based pay: Many employees are willing to accept a below-market base salary if the incentive could add up to above market pay.

-How will the criteria be weighted?:  To over-reward employees for short-term accomplishments can be quite costly to an organization. It is important to clearly define what would be considered short-term versus long-term actions.

-How will the organization guard against score inflation or other manipulation?:  Manipulation of performance appraisal scores by raters and managers undermines the fairness of the employee appraisal and pay for performance systems.  Employees will perceive management as “gaming the system,” and the rewards become meaningless.  To guard against this demoralizing effect, Human Resources must continually review score results across departments and managers to identify scoring trends, and address score inflation or manipulation sooner rather than later.

-Will there be a partial incentive or reward if goals are partially achieved?: To have an “all or nothing” incentive or other reward can work for some industries, but not all. Establish at what rate rewards will be provided and what constitutes a “partial reward.”

-How will the criteria be established? How are the accomplishments measured?: Tapping into the expertise of an HR consulting firm is recommended when it comes to answering these questions. Utilizing an external third party enables the organization to explore the types of systems the competition uses, performance management trends, best practices, and pitfalls to avoid.  For example, Astron Solutions’ Web-Based Talent Management program, Flare™, combined with supportive consulting, has helped many organizations efficiently manage the challenges of creating and implementing a pay for performance program. Why not request a demonstration to learn more?

-Can we establish any of the rewards to be paid out on a discretionary basis?: Perhaps an employee may handle an unforeseen task so masterfully that those responsible for handling bonus awards or merit increase awards may deem it necessary to reward the employee outside the scope of the formal pay for performance program. Keep in mind, however, that it can be demotivating to have compensation based on unknown criteria. When using this type of discretionary plan, be discreet and make payout decisions wisely.

Pay for performance programs run contrary to the thought that performance should not be linked to compensation. This is especially so when one questions the structure of a pay for performance program. One person writing for the Harvard Business Review recently said, “When you try to institutionalize pay for performance you actually ruin the concept.” Others even question whether board members or HR professionals in an organization would know enough about what it takes – skill and difficulty – to perform at current levels.  As such, it is important to make sure when creating the pay for performance program design team that all sides or concerns are represented and considered. Examining the experience each team member has in areas such as compensation and management is critical.

When structured appropriately for the organization’s jobs and industry, pay for performance can provide multiple benefits to the employer.  Without careful development and on-going monitoring, however, the program may run contrary to the organization’s Human Resource goals.  Pay for performance is an important part of the compensation world that must be considered carefully by all organizations.

Working from Home Is the Wave of the Future

There are memos and then there are MEMOS like the one from Office Space about the TPS reports or the one sent by the Yahoo! CEO Marissa Myers (outed by AllThingsD) which banned working from home. There have been a myriad of reactions from the memo (mostly negative) and some of them are worth getting more into--and we'll do so right now.

Huffington Post (H/T Shira) wrote about why it's good for everything from the environment to the employee turnover and productivity. CNN wrote why this is a women's issue, followed up by TIME saying that is a men's issue as well. But the biggest thing of all is that Yahoo! is missing the point here, and missing the wave of the future according to Today:

By focusing more on measuring how well employees are doing their job, and worrying less about where the work gets done, companies with flexible work policies are seeing productivity go up, according to human resources experts. 

That may be one more reason American companies are adopting flexible work policies. As of last year, nearly two-thirds of employers offered flexible work rules to at least some of their employees – up from about a third in 2005, according to a national study by the Society for Human Resource Management. 

“We don’t see this trend going away,” said Michael Aitken, SHRM’s vice president of government affairs. "This is the way that work will get done in the future. I spend a great deal of time and energy in educating our members about the value that it offers.”

The key is the last part. Employers know about certain benefits of working from home (and the disadvantages of not allowing employees to take advantage of it), but it's the education of companies and those in charge of decisions like these that need to understand the pros and the cons. Not every type of job (and not every employee) will be able to work in this environment. But for the ones that are, the wave of the future is telecommuting and you better at least get educated about it before you get left behind.

(We'll discuss this more later in the week)

It's Casual Friday

From my favorite current hockey player in the latest of the string of my favorite commercials:


Have a great weekend!

Either Way, The End of a Long Week

Happy Friday! I had to work a full 5 days this week (ugh) but even for those who only worked 4 days, this probably seemed like a looooonnnnngggg week. Why? Well NBC's The Body Odd says it's because we as humans are used to a routine and once you change that up, it messes with our minds:

"If I had to venture a guess, I would say that it could be because four-day work weeks are much less common and are a deviation from the typical five-day work week," Marc Buehner, a psychologist at the U.K.'s Cardiff University who has studied the psychology of time perception, said in an email. "There are some laboratory studies that show that predictable events are perceived as shorter than unpredictable events."

The blog post is interesting because it talks about perception and how, as humans, when we get out of our routine, our perception gets messed up. That Monday routine got squashed because the week started on Tuesday and now you can't figure out what the heck is going on. So while you're bemoaning your 5 or 4 day work-week, imagine how long a 3-day work-week would have been and be glad--just kidding!

Have a great weekend!

Compensation 103: Salary Structures

An important part of compensation administration is the salary structure. According to Compensation Programs and Practices 2012, 85 percent of organizations have a formal salary structure in place. What are the pros and the cons of using a formal salary structure? What type of salary structures can be used to attract and retain talent?  How often should an organization update its salary structures?  How does HR know when it is time to create a brand new salary structure? These are essential questions we will answer in this issue of Astronology: Compensation 103: Salary Structures.

At its most basic, a salary structure is the manner in which an organization carries out its pay philosophy. As mentioned in our Compensation 101 and Compensation 102 articles, formal salary structures are used to create fairness among employees and protect an organization from possible federal law violations. Having a salary structure, however, is a commitment.  Organizations must keep the pay ranges up to date, or run the risk of paying non-competitive wages or being unable to attract new talent.

There are two leading types of salary structures that an organization can use: the Internal Equity Structure or the Market Pricing Structure.
 

Internal Equity Structure

The Internal Equity Structure is described as a salary structure that “examines positions and creates levels of pay, with large jumps in salary rates for the higher positions in the company and smaller jumps for lower-level jobs where promotions may not have so much effect.” In the Internal Equity Structure approach, the primary focus is on the value each job brings to the organization.  Organizations typically increase each grade’s midpoint salary range by 15% of the midpoint for the range below. Such ranges provide room for developing employee skills and an employee’s value within the organization. In addition, by using range maximums, the employer sets a limit for what the organization will pay for all jobs and levels.  Without an eye towards the external market, however, the Internal Equity Structure may not reflect current market pay rates.

 

The Market Pricing Structure

The Market Pricing Structure is quite simple.  The pay range for each job is tied to the market pay rate.  “Market” is defined by the region and industry of interest to the organization.  For some positions, the local market is relevant, while for others, a regional focus on industry specific competitors is pertinent.  Many organizations use this approach for developing salary ranges, as it is easy to understand and gives consideration to competitive pay.  

As a result of the external focus, the pay range structure determines which positions should be paid more than others, while reflecting yearly rate increase trends. For organizations with strong competition, this structure is ideal as it incorporates the compensation activities of targeted counterparts and what they may be paying employees in the same position.  The Market Pricing Structure is often used when organizations have employee retention concerns.

The Market Pricing Structure, however, does not place a primary emphasis on each position’s value to the organization.  Rather, the value and range placement reflects that of the external market.  As such, positions with a shortage of talent, or “hot” skills, may command a higher pay range than an organization would otherwise want to pay.

 

One or the Other?

While it seems that organizations will use either the Internal Equity Structure or the Market Pricing Structure, in reality most employers use a blend of the two.  “The majority of our clients use the Market Pricing Structure, while keeping an eye towards internal equity,” explains National Director Jennifer Loftus.  “An employer cannot focus strictly on the external or the internal, to the detriment of the other.  Employers who successfully attract and retain employees keep their eye on both distinct balls, and achieve balanced compromises in situations where the external and internal dictate widely differing grades and ranges.”

As mentioned in the previous Compensation 101 and 102 articles, an organization’s salary data, ranges, and structures should be reviewed at least once a year to ensure on-going effectiveness.  However, it is sometimes necessary to conduct interim reviews to ensure market competitiveness and internal equity.  What are some signs that your organization may need to change its salary structure?  Employee dissatisfaction can be an indicator. Astron Solutions offers a variety of options in employee satisfaction surveys that allow organizations to obtain employees’ feelings in regards to their employment. Designing a survey to address organizational compensation issues can be used to determine whether your organization may be in need of adjustment.  In addition, an inability to hire and / or retain employees can also indicate the need to review an organization’s salary structures.  While other factors such as work conditions, location, and managerial style may be driving recruitment and retention issues, it is important to first review the compensation structure to ensure it is not creating these employee challenges.

When was the last time your organization reviewed its salary structures?  With spring right around the corner, now is a great time for a compensation tune up!  Contact Astron Solutions today for a free consultation to learn more, and enjoy a more effective 2013.

Happy President's Day (and a return to Baseball)

I wanted to wish everyone a very Happy President's Day to all of our readers from everyone here at Astron. If you're not a lucky one who has off today (I am one of the unlucky), then take solace is this: President's Day means that the start of baseball is right around the corner. Before the next major holidays, we'll have Spring Training Games, the World Baseball Classic, and, yes, Opening Day.

Baseball season reminds me of this Forbes article I read back in the fall. It talked about Joe Girardi's leadership while battling both personal and professional adversity. As the article wrote about Girardi in mid-October:

Girardi’s recent achievements are probably some of his finest as a manager. Besides winning his third American League East title and narrowly defeating a tenacious Baltimore Orioles ball club during the regular season and in the American League Division Series, he accomplished these amazing feats with a heavy heart. Girardi’s father had passed away of Alzheimer’s disease on October 6th and kept the matter private until an obituary was going to run in a local paper back in his home state of Illinois. As Girardi was being peppered with questions regarding Alex Rodriguez’s performance and the Yankees’ chances of success in the postseason, he compartmentalized his numerous tasks and didn’t let a personal tragedy affect his job. Girardi put the needs of the ball club in front of his own anguish and grieving.

This is not meaning that this solution is right for everyone but as a leader of a ballclub, an organization or even a small group, the key is to always find a way to provide an example for other employees--especially in the face of adversity. There is a lot to be said for people who lead through good times, but the best leaders are the ones who are able to navigate the tough times and still come out on top. And although the Yankees didn't win the World Series last year, Girardi's leadership in the face of the tough time the team faced, while not always perfect, was a big reason they got as close as they did.

Guest Post: My First Experiences with HR

The guest posts roll on this week with Michelle's post about her first experiences in HR--and how they reminded her that the interviewing process is very similar to the dating process. Without further ado, here is what Michelle had to say:
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So I was thinking back to one of my first experiences with Human Resources and it was when i was trying to get my job secured while i was still in college. I was in touch with the HR director of the agency that I worked for right after college but I remember how hard it was to reach her and to get a definitive answer. I had all my interviews (traveled to New York City and back to Boston all in one day to get them all done) and followed through with HR every week or so to see if there was any confirmation of my hire. I would usually get her voicemail and not receive a call back for a few days. When I did hear back, she would always say something like "we're still in the process of finalizing your position"

After a while I got incredibly frustrated (I really wanted to have my job in place before I graduated). I felt like i was being strung along and i also remember feeling like "why would i want to work for an agency that can't get their act together?"

In other words, I felt that her lack of a definitive answer for so long reflected poorly on the agency. And I also felt like because she was the only person from the agency that i was in communication with, I remember feeling like she was the person who represented the company.  In other words, she embodied the company.

I guess what I'm trying to say is that before you start working somewhere, the HR person is inevitably the only person you get to communicate with. That's why it's important for them to be in open dialogue about your job's status etc, because in the end, you get an impression of the company based on the only person that you are in communication with. Had this HR director handled my job status better, I would not have started having doubts about the agency as a whole.

I was thinking it could be good advice to HR managers when they realize that they are the face to the company for someone who is applying and it is therefore important to handle/manage expectations properly during the whole interview/hiring process. If the manager is hard to get a hold of or they are not sharing concrete information, it can make you feel like the company as a whole is not some place that you would want to work at.

Also, this fits with my whole theory about how applying for a job and interviewing at a company can feel like dating--did the recruiter/HR person like you during the interview (analogy: first date)? will they call you back for a 2nd interview (analogy: second date)? There are so many similarities: from the way you dress to make a good first impression to the thank you (kind of like after a date you write a "thank you" text saying you had a good time and you hope to see the person again). A bad first impression, though, can be a long way to saying "no thanks" to both a prospective job and a prospective relationship.

Guest Post: Making a Final Decision without Facetime

The story by Alaine on Monday has inspired me to reach out to friends in order to find out more about what is really going on during the job search process and for 20-somethings who are out in the working world. One friend (who wished to remain anonymous) had two stories to tell. Here was his first:
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I had a final round interview on the phone for a company after having the first round on the phone. The firm was in New York but the partner was located in London so it was necessary to do this by phone. There was never a chance for facetime so I had the full one-hour interview. I was told there was one position with about ten candidates.

I received feedback from the hiring manager who told me I was a runner-up for the position but unfortunately, did not get the role. It was quite frustrating and difficult to not have the chance to interact, especially for a job with such high stakes.
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Thanks to the friend for sharing that. What he shared here seems to be too typical of companies today who have too little time and money for interviewing. Too often candidates get through a rigorous process only to have their candidacy determined in an impersonal way (and a way that really doesn't allow for a true evaluation of talents). Not only was this a bad way of going about things for him, but it's hard to imagine that it's a good idea from a company perspective to hire someone that they've never met before in person (anyone who follows the Manti Te'o controversy knows that the phone is not the best way to determine someone's validity). This friend is now employed at another company so it didn't stop him from finding a job in general but this job left him wondering "what if..."

Ask The Expert: Underperforming and Trying to Climb the Ladder

We've got some great questions for the "Ask The Expert" series so far, so please keep them coming. If you have a question, you can contact Jennifer or myself under our "Contact Us" tab on the top of the page. We look forward to hearing your questions (and getting you answers!). This one comes from an anonymous source who says "this is sort of an emergency--can I get a response by Wednesday???" Well we're a day early, anonymous, and here is what Jennifer had to say:
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Question from Anonymous

What do you do with an employee who requests more responsibility/promotion but you feel that they aren't going to do any better than the job they are currently preforming?

Answer from Jennifer

Wow, the situation you’ve described is a delicate one.  On the one hand, you want to celebrate the initiative that the employee has taken in requesting additional duties and responsibilities.  On the other, it appears that the employee currently has some performance deficiencies that need to be enhanced first before promotions can be discussed.

Thank the employee for taking the initiative to approach you, and explore why he / she chose to do so at this time.  In that exploration, you may find out the root cause, such as too many years in the same job, a desire to earn more money, pressure from home to have a job with a “better” title, or taking a cue from a friend who recently did the same.  That root cause can inform your response. 

If that exploration does not yield any actionable information, however, you will need to take a different approach.  Find out before your meeting with the employee your organization’s policy on promotions.  Can they happen at any time during the year, or only when annual performance appraisals are being conducted?  Does an incumbent need to be in the job a certain amount of time, such as one or two years, before being considered for a promotion?  Your employer’s policy may hold the answer you seek for the conversation.

If neither of these approaches work, however, you’ll have to be honest and upfront about why a promotion isn’t a possibility at this time.  For example, if work output is a consideration, explicitly outlining for the employee the necessary promotional criteria will be helpful: “John, I appreciate your interest in and enthusiasm regarding growth opportunities here at Company XYZ!  All our employees in position X [produce Y widgets per hour / successfully manage at least Z client engagements / have employee turnover below A%].  We need to help you develop your skills in this area.  Let’s jointly identify some specific goals for you to accomplish and training opportunities to take advantage of in the next 6 months to get you on a potential track for promotional consideration.”  The position’s job description may also have promotional criteria included which can help in this discussion.

You know the employee and the organizational culture best – what I’ve described here may be effective, or may need some wordsmithing to make the situation an eventual win-win for all.   Also remember that you must watch your language to not include any promotional job guarantees.  If the employee misconstrues what you say, they may think an oral contract was created during the meeting, which creates a different set of issues to deal with down the road!

Good luck!  Please let us know how the conversation goes.

Compensation 102: Job Evaluation

The importance of job evaluation is simple. In order to create a competitive yet equitable compensation system, organizations need clear job classifications.  There are also federal laws to take into consideration when designing compensation systems.  Title VII of the Civil Rights Act prohibits employment discrimination based on race, color, religion, sex, or national origin.  The Equal Pay Act protects men and women who perform equal work in the same establishment from sex-based pay discrimination.  The Age Discrimination in Employment Act defends the working rights of individuals 40 years of age or older.  Job evaluation is essential for organizations to be in compliance with these laws.  In short, job evaluation evens out possible wage wrinkles. It also helps to creates clear guidelines for an organization to follow with respect to employees’ wages. This week’s Astronology discusses the importance of job evaluation and the four primary evaluation methods.

The Objective of Job Evaluation

The purpose of conducting job evaluation is to fairly determine the monetary value / worth of a job in relation to other jobs in an organization.  It’s the bridging gap between the relative worth of a position to the organization and the pay range structure into which the position falls. The thought of having to review every job position in an organization can be daunting, especially if the organization is large. Fortunately, this is not always necessary.  Select the key job positions, positions that address or cover the type of work essentially performed in each department.  Using job evaluation results, one can develop appropriate salary grades and decide on other compensation issues. Job evaluation can also help clarify job descriptions that could be used in determining performance standards and creating performance appraisal systems.

It’s imperative that job evaluations are reviewed periodically. Work conditions change over time. For instance, technology advances and new services to benefit the organization become available, potentially changing a position’s grade level or even eliminating certain job requirements / positions.  But where to start!  There are four job evaluation methods to consider, which we will explore here.
 

The Ranking Method

Considered the simplest job evaluation method, in the Ranking method jobs are listed from highest to lowest value / merit in relation to the organization. This listing can also be done according to level of difficulty in job performance. In this method, jobs are examined as a whole.

This method is highly subjective, which could result in upset employees and low job morale among employees with lower job rankings. This morale impact can be detrimental to an organization’s culture.  The ranking method, however is more time and cost efficient than other job evaluation methods.  The ranking method is often appropriate for smaller organizations, or those with only a few jobs to evaluate.
 

The Classification Method

Guest Post: Lessons In Job Hunting

Hope everyone is recovered from Super Bowl Sunday (should I say "got their power back"?). We're back today with a great guest post from a friend who writes about what it's like from the perspective of a job searcher. It's not an easy time to be looking for a job but she has some good lessons from her experiences. Without further ado, I kick it over to Alaine:
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I have learned a lot about looking for a job through my five months of job searching. This is particularly true now when many employers are not hiring (or not hiring as much) and there is a LOT of competition for jobs. Also, I will admit--I’ve been a little picky in my search- I have a master’s degree and prior work experience, so I feel like I can do that. I’m looking for a job that I will enjoy and want to go to everyday, not simply JUST a job.  Here are a few things I’ve learned through my search:

The most important lesson I’ve learned is the value of networking; It’s literally the only way to get a job these days. There is so much competition, employers are receiving hundreds of resumes, and it’s hard to distinguish oneself on paper. The best thing to do is to know someone at the company- they can make a recommendation to HR or give you the inside scoop on how to apply, which is a million times more valuable than being another paper in a stack of resumes.

Don’t waste your time on online job applications.  Searching for and applying for jobs online can take hours- don’t waste your time! It may be useful for someone looking for an “Administrative Assistant” type of position but not for a more specific position, especially if you have an advanced degree and want to be picky. Employers receive boatloads of these – they’re impersonal and you’ll have a much better chance if you actually know someone at the company or at least have had an informational interview with them.

Networking isn’t only about schmoozing at industry events or conferences: informational interviews are perhaps the best way to expand your professional network and make solid connections. Talk to everyone that you can who might be related to the field you’re looking to work in. Use your existing networks of fellow alumni, professors, family and friends. An informational interview is a great way to get your name out there and also to learn more about the field, specific companies, and specific types of positions- it can be very helpful to guide your search.

Be proactive about meeting people and finding positions. Investigate the companies and organizations that you want to work for. Who are the big companies in your field? Who are the up-and-comers? Find out their main business operations and which employees seem to run the show. Has the company put out any press releases, or been mentioned in any articles? Try to find someone at the company to reach out to for an informational interview to find out more about a certain sector, position, or business operation. If you can, use your existing networks to make a connection at the company- LinkedIn is great for that!

Keep up with industry news and events. You never know who will show up at these things- it could be your next employer! Even if you don’t make a good connection at an event, it’s a great talking point at a future interview.

You never know who knows who or what can lead to what. Your best bet is to put yourself out there, meet as many people as you can, and stay on top of industry news and events for good talking points.

Ask The Expert: School Bus Strike

On this last week in January, we are going to start a new tradition where we'll do an "Ask the Expert" series with Human Resource questions that will be answered by Astron Solutions' National Director, Jennifer Loftus. Jennifer has so many abbreviations after her name (MBA, SPHR-CA, GPHR, CCP, CBP, GRP) that I believe she qualifies as an expert in this field (and many others as well). Feel free to submit any HR questions that you have and I'll zip it over to Jennifer to see if we can get it answered for you. So without further ado, here is the first post:

Question (after reading the last Astronology), Cassandra said:

It made me reflect back on this whole school bus strike happening out in Staten Island. How are they able to strike? Because they are unionized?

Answer from Jennifer:

Yes, the school bus drivers are striking because they are part of a union / collective bargaining agreement. Although such rights are afforded to all employees under Section 7 of the NLRA, it’s generally only unionized employees who will take a strike action.

If what the City says is true, that the bus drivers are asking for a contract clause that is illegal, it seems odd to me that they are trying to get that changed through a strike, rather than working with their legislators.

Guest Post: Happy Birthday to Us!

Once again we give the floor to Jennifer who wanted to talk about a very special day that was had at Astron yesterday. Congrats to Jennifer, Michael and the rest of the team for such an awesome accomplishment!
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Happy birthday, Astron! 

Yesterday, on January 22^nd, the Astron team celebrated our 14^th anniversary! How quickly the time has passed. Thank you for being a part of our success, from our humble two person beginnings in Suite 6G, to where we are today! We look forward to serving you for more many more years to come.

Compensation 101: Compensation Philosophy

The compensation philosophy is the foundation for all compensation decisions an organization makes.  Developing a compensation philosophy, however, is not always an easy task.  There are a number of questions that an organization’s leaders must explore in order to ensure that the compensation philosophy helps the organization to achieve its goals. 

What is the purpose of a compensation philosophy? What elements are included in the compensation philosophy?  Does the compensation philosophy vary by employee group, department, or other category? How frequently must it be updated?  These are critical questions that need to be answered by Human Resource professionals, no matter the organization. In this issue of Astronology, we discuss the ins and outs of compensation philosophies and their importance.

What a compensation philosophy and why is it so important?

A compensation philosophy, in short, is the formal statement or commitment an organization creates in regards to the compensation of their employees. The transparency of this commitment benefits both the employee and the organization when it comes to pay strategy and salary negotiations. Compensation philosophies usually are developed with teamwork between human resources and executives.  The key factors to be considered when creating a compensation philosophy can include the:

•          Organization’s financial position,
•          Size of the organization,
•          Type of industry,
•          Organization’s objectives,
•          Salary comparisons with the competition, and
•          Level of talent currently in place and needed for success.

The main goal of a compensation philosophy is simple: attract, retain, & motivate employees.  In order to do this, the compensation decision making team should mix Base Pay (salaries based on survey insight), Incentive Pay (cash or non-cash awards), and Benefits (non-financial awards) in accordance with the organization’s resources.  For example, private sector organizations would want to develop a pay philosophy that includes competitive pay, whereas an organization in the public and non-profit sectors may want to develop a pay philosophy that is more rounded to also include a heavier emphasis on work/life benefits.  Developing a philosophy can be a challenge, as many organizations have varied circumstances.  The organization’s unique circumstances can make creating a competitive compensation philosophy difficult, no matter the level.  A careful balance of resources must be considered.

How often should the compensation philosophy be reviewed?

With this question we explore the on-going “Lead/ Lag Tango”.  Many organizations review salaries once or twice a year.  However, despite the annual or bi-annual salary review, market values change continuously. As a result, an organization is likely to be at market value once or twice a year. Consequently, the compensation team has to decide when they would like to offer raises.  Should your organization lead the market at the beginning of the year, following the lead-lag approach? Or lead at the end, following the lag-lead approach? What if an industry or position requires new college recruits at different intervals of the year? What if different positions have different recruiting seasons? These are personal decisions that must be considered for your organization’s needs. Planning reviews a month or two before an industry / position recruiting season is an approach for successfully navigating this dance.

How important is consistency?

Consistency is very important. Salary.com gives the wary example on the importance of consistency: “…suppose a company established a flat rate of $9.90 per hour for nonexempt employees in a customer service role. The department had 200 percent turnover. Despite the published flat rate, some employees with college degrees successfully negotiated for $10 per hour or more, while employees with 20 years of experience faithfully assumed the flat rate was non-negotiable. Soon, three women over 40, a protected class under age discrimination laws, were earning less than three men who had just graduated from college. The manager's defense when confronted with the disparity was that the women never asked for more.” This is a sobering reminder of the importance of staying consistent to a dedicated compensation philosophy.

How important is communication?

A sound compensation philosophy can create a sense of fairness in organization. As a result, it is important that a pay philosophy be communicated to all employees and even job candidates. It is much easier to mention in salary negations the market rate in relation to an organization’s salary offer, rather than dealing with complications down the road. 

How do I know my compensation philosophy is of quality?

SHRM offers the following questions to test your compensation philosophy:

• Is the overall program equitable?
• Is the overall program defensible and perceived by employees as fair?
• Is the overall program fiscally sensitive?
• Are the programs included in the compensation philosophy and policy legally compliant?
• Can the organization effectively communicate the philosophy, policy, and overall programs to employees?
• Are the programs the organization offers fair, competitive, and in line with the compensation philosophy and policies?

 Would you like to know more about compensation philosophies?  Are you struggling with updating yours?  Astron Solutions offer a variety of compensation packages that designed for varying organizational sizes and industries.  Contact us today for a free 30 minute consultation.  We look forward to helping you achieve your compensation goals for 2013!

Talking Unemployment

I have to admit the graphic doesn't exactly fit with the article but Slate last week looked into the best places to find a job by studying the unemployment rate of big cities:

The new metro area unemployment numbers are out, and the winner for lowest unemployment among American metropolitan areas is once again Bismarck, N.D. at 2.6 percent...In terms of large metropolitan areas with populations of over 1 million, you ought to set your sails for Oklahama City (4.5 percent) or New Orleans (4.7 percent and falling fast) as labor markets that are both hot and clearly seem to have the ability to absorb more people. Tulsa...is also doing quite well with a 5.1 percent unemployment rate but not quite as well as the D.C. area where we're at 5 percent.

As you can see by the always-handy Google graph, the unemployment rate has been pretty steadily decreasing since it reached 10% back in October of 2009 to the point where it's at ~7.8% now. In New York, we're seeing a 8.3% unemployment rate in the state and a 8.8% unemployment rate in New York City according to the New York Department of Labor.

The New York Times Economix blog recently looked into why the unemployment rate was so high still but in the article brought up something else that is equally disturbing:

Another feature of the current recovery is the long duration of unemployment for many workers. At the end of last year, 4.8 million Americans were unemployed for 27 weeks or more, and their share in the total number of unemployed workers fell to 39 percent after peaking at 45.5 percent in March 2011 and exceeding 40 percent for 31 consecutive months. The previous peak was a far lower 26 percent in 1983, at a time when the unemployment rate was about as high as it is now.

That number may actually be low, as it does not factor in "1.1 million discouraged workers who want a job but are not currently looking for work, and many of the 1.7 million workers who have joined disability rolls because they cannot find a job."

That's scary. And while all the talk lately has been about the Fiscal Cliff and the Debt Ceiling and other matters of the such, the author points out that Congress has not taken into action some of President Obama's proposals from his first term that would have started to reduce this long-term unemployment such as increased unemployment fund for job training and placement programs and a tax credit for businesses hiring people out of a job for more than 6 months, among other initiatives. The author worries that this could compound the problem and lead to much worse news for the US economy than anything we've had to worry about thus far. Scary stuff, indeed.

Ford's Impact

This was sent along to the blog from our fearless leader, Jennifer. Figured this was a good post for a long week's Wednesday on the blog:

I was reading in the 1/7/13 issue of Woman’s World, and they have an “it happened this week” column.  I found this neat HR story in this week’s happenings:

Henry Ford stunned Americans when he enacted an eight-hour workday and $5 daily minimum wage at his Ford Motor Company in 1914.  The unprecedented wage hike more than doubled most workers’ salaries.  The result?  Employee turnover decreased, and profits shot up $30 million over the next two years!

Compensation Practice Basics – Our New Six-Part Series

According to an October 2012 study reported by WorldatWork, it’s back to basics for compensation programs.  Human Resources professionals must be knowledgeable about the fundamentals of several compensation tools in order to successfully attract and retain talent in 2013.  The study, Compensation Programs and Practices 2012, notes that, across a wide spectrum of organizations, there is a more rigorous approach when it comes to compensation practices than in past years. 

Astronology looks forward to sharing compensation basics with you and exploring changes in compensation practices and programs for the future. We will examine the study’s findings and discuss compensation basics with you throughout the upcoming six-part Astronology series.  By the end of the first quarter of 2013, you will be primed and ready to enhance your existing compensation programs to ensure successful employee attraction and retention!

·         Compensation 101: Compensation Philosophy – Coming January 22nd

Compensation Programs and Practices 2012 found that 67 percent of organizations are adopting a formal, written compensation philosophy to ensure compensation programs support the organization’s culture. Has your organization adopted a compensation philosophy?  What elements are included in your compensation philosophy?  When was the last time you updated the compensation philosophy?  Does your compensation philosophy vary by employee group, department, or other category?  We’ll explore these questions and more in Compensation 101: Compensation Philosophy, as a compensation philosophy is the foundation upon which all other compensation decisions are made.

·         Compensation 102: Job Evaluation Methods – Coming February 5th

Market pricing remains a dominant method for job evaluation.  However, it is not a true job evaluation method, since its focus is external rather than internal.  Since neither the external nor the internal can be ignored when developing compensation systems, many organizations use a variety of methods to determine job values. In Compensation 102: Job Evaluation Methods, we will examine the various job evaluation methods and how they can be used to effectively create job groupings reflective of internal and external value.

·         Compensation 103: Salary Structures – Coming February 19th

According to Compensation Programs and Practices 2012, 85 percent of organizations have a formal salary structure. What are the pros and the cons of having a formal salary structure in place? What type of salary structures can be used to attract and retain talent?  How often should an organization update its salary structures?  How does HR know when it is time to create a brand new salary structure?  Compensation 103: Salary Structures will examine a wide variety of necessary considerations when building a salary structure.

·         Compensation 104: Pay for Performance – Coming March 5th

Compensation Programs and Practices 2012 cites that 71 percent of organizations have a formal employee performance appraisal system. A popular choice in this regard is to measure individual performance against management or personal objectives. How flexible can an employee performance appraisal system be? Where do you start when establishing a performance appraisal system?  What types of evaluation criteria should be included in the performance appraisal system?  How can HR ensure that the performance appraisal system is fair?  Does compensation link with performance appraisal score?  Should it?  The thorny issues are on tap for Compensation 104: Pay for Performance.

·         Compensation 105: Pay Communications – Coming March 19th

Compensation Programs and Practices 2012 found that 80 percent of organizations relay pay information to their employees via brief written or oral communication. In some cases, individual attention is given to employees regarding the topic of pay.  What is the best way to go about communicating the sensitive, but necessary topic of pay?  What communication methods are most effective?  Is there one right way to share pay information?  Are there any legal considerations that impact pay communications? You won’t want to miss Compensation 105: Pay Communications, since the best compensation programs lose their proverbial punch if not communicated effectively to employees.

·         Compensation 106: Variable Pay – Coming April 2nd

Wrapping up our six-part series, Compensation 106: Variable Pay will discuss the options surrounding and challenges with incentive programs. According to Compensation Programs and Practices 2012, in 2012 84 percent of organizations used some form of bonuses or incentive compensation to reward employees.  There are many options in the realm of variable pay: bonuses, award recognition payments, and individual performance plans are but three. What the pros and cons of different variable pay design options? Which variable pay options are viable for your organization, given its goals, objectives, financial status, and culture?  Does one variable pay design option fit all?  Or should the variable pay design change over time?  Our six-part series on compensation basics comes to a close with Compensation 106: Variable Pay’s examination of a more advanced compensation topic.

It’s going to be an educational Spring 2013 here at Astronology!  We look forward to exploring these topics and questions with you in the next six issues. We also look forward also to hearing your reactions, responses, and questions. Please contact us today with any specific questions you’d like us to tackle during this six-part series on compensation basics, and we’ll be sure to include a response to your question in the relevant article!

Home for the Holidays?

Happy New Year from all of us at Astron Solutions! As we start the new year, we start a new year of holidays and vacation time for all employees. But as companies try to maximize productivity and eliminate as much "unnecessary" vacation time as possible, which days out of the year are truly mandatory to give off and which ones are "optional"? The question may seem simple but there is a great amount of ambiguity as it pertains to both public employees and those that work for the private sector.

According to Compensation Today, without a collective bargaining agreement or contract that says that you have to, technically there is no federal law that says that you have to provide any holidays for nonexempt employees, yet 97% of companies due, mostly to create goodwill among their employees and keep up with societal norms. Some companies provide a lot of vacation time for their employees and some provide very little, but the actual days that are provided change by company and geography.

According to WorkAtWork's Survey from 2010, the top 6 days off for any type of system of paid holidays were New Year's Day, Thanksgiving Day, Labor Day, Memorial Day, Independence Day, and Christmas Day (all clocking in at ~90% or above). After that was the Day aft Thanksgiving and Christmas Eve which were both highly provided.Others got President's Day/Washington's Birthday, Martin Luther King Jr Day, New Year's Eve, Good Friday, Veteran's Day, and/or Columbus Day.

But that doesn't mean everyone gets all of these--far from it. Even the states can't agree on who gets what days off. MLK Day, which is coming up, is celebrated in almost every state as a legal holiday but Rhode Island doesn't recognize it as such. But Rhode Island celebrates Columbus Day as a day off which 22 other states don't give to their employees.

The key? Find out which days you "need" people in the office. Sure, you could probably use people in the office 7 days a week for 52 weeks of the year, but in lieu of that, which days are your clients not working that you can give them all off. Start with those as the base days off. Then figure out a good amount of days that make sense to have off and work towards those. Figure out what's normal for your industry and what's fair for your employees based on their location and come up with an easy-to-follow, smart, and, most importantly, consistent vacation schedule. The last thing you want is your employees planning something for their annual MLK Day off just to find out when they come back to work after New Years that they will have to work that day.