Best Practices in Compensation in the Current Economy. CBIZ Human Capital Services

Transcription

1 Best Practices in Compensation in the Current Economy CBIZ Human Capital Services

2 HR matters enormously in the good times. It defines you in the bad." - Jack Welch BusinessWeek, March 12,

3 Introduction Explore turnover in the rebounding economy Examine compensation economics 101 Offensive and defensive strategies Review steps for designing a marketbased compensation system Recognition and sustaining high performance through a merit matrix Answer your questions 3

4 Projected Turnover as Economy Improves According to a recent WorldatWork survey, more than half of employees intend to leave their current job as the economy improves. The survey asked: Do you plan to pursue new job opportunities as the economy improves? 60% Yes, I intend to leave 21% Maybe, so I m networking 6% Not likely, but I ve updated my resume 13% No, I intend to stay. 4

5 Compensation Economics 101 5

6 Cost of Labor Supply of Labor Supply Supply of Labor P 3 C P 2 B P 1 A Q 1 Q 2 Quantity of Labor Q 3 6

7 Cost of Labor Demand for Labor Demand Demand for Labor P 3 A P 2 B P 1 C Q 1 Q 2 Quantity of Labor Q 3 7

8 Cost of Labor Supply and Demand of Labor Market Equilibrium Supply and Demand - Equilibrium Demand for Labor Supply of Labor Market Equilibrium Supply = Demand P* Q* Quantity of Labor 8

9 Cost of Labor Effect of Minimum Wage Supply and Demand - Price Floor (Minimum Wage) Demand for Labor Excess Supply of Labor Supply of Labor P 3 Price Floor Q 1 Quantity of Labor Q 3 9

10 Cost of Labor The Rebounding Economy - Shift in Demand for Labor Demand Shift Supply Demand 1 P 2 Quantity of Labor As Because the economy high performers rebounds, can the drive demand organization for all employees through will the increase. down economy Accordingly, and differentiation in Because Additionally, of the due poor to unemployment, economy, the demand the supply for of average-performing employees is down. is up. compensation position it well based for a on rebound, performance there is will an become increased more demand important. for high-performing employees. Q 2 10

11 Compensation Strategies in the Rebounding Economy Offensive Strategies: Top Grading Poach top performers at competitors who would help drive your organization forward. This is especially true for sales staff. Pay the winners like winners and losers like losers. Aggressively pay for performance via a merit matrix (further discussion in the following slides) 11

12 Compensation Strategies in the Rebounding Economy Defensive Strategies: Total Rewards Statements Communication regarding other positive aspects of being employed by your organization Consider changing targets for sales staff to ensure that they are reasonable given the current downturn Re-price Options otherwise executives will 12

13 Compensation Strategies in the Rebounding Economy Blended/Performance Management Strategies: Offensive component of performance management = Helps attract key talent from outside the organization Defensive component of performance management = Helps motivate and retain high performers within the organization 13

14 Designing a Market-Based Compensation System Plan and collect data Ensure job documentation accuracy Complete market analysis Design pay structures Model implementation costs Assess internal equity Create procedure manual Report results 14

15 Market Pricing Methodology What is market pricing? Valuation of pay for jobs in the external labor markets Key considerations when determining labor markets: Location Local Region Nation Industry Industry specific Broad spectrum of employers

16 Market Pricing Methodology Reliable Data Published survey data Major consulting and surveying firms Statistically validated Standard deviation analysis of data Unreliable data examples: Self-reported data DOL Data from one or two competitors

17 midpoint Designing Salary Structures Range Spread Midpoint Differential 17

18 Compensation Strategies in the Rebounding Economy Merit Matrix Approach: Affects pay increases, not pay structure Rewards performance Focuses dollars on employees that are most likely to leave because of pay 18

19 Low High Compensation Strategies in the Rebounding Economy Merit Matrix Low COMPENSATION High 19

20 Compensation Strategies in the Rebounding Economy Merit Matrix Typical Matrix Quartile in Range Performance Exceptional 3.5% 3.5% 3.0% 3.0% Exceeds Expectation 3.0% 3.0% 3.0% 3.0% Effective 2.5% 2.5% 2.5% 2.0% Development Needed 2.5% 2.5% 2.0% 2.0% Critical Need for Improvement 2.5% 2.0% 2.0% 2.0% 20

21 Compensation Strategies in the Rebounding Economy Merit Matrix Best Practice Matrix Quartile in Range Performance Exceptional 6.5% 5.5% 5.0% 4.0% Exceeds Expectation 6.0% 5.0% 4.0% 3.0% Effective 5.0% 4.0% 3.0% 2.0% Development Needed 2.0% 1.0% 0.0% 0.0% Critical Need for Improvement 0.0% 0.0% 0.0% 0.0% 21

22 Compensation Strategies in the Rebounding Economy Merit Matrix Ultra-Aggressive Matrix Quartile in Range Performance Exceptional 13.0% 11.0% 5.0% 3.0% Exceeds Expectation 11.0% 6.0% 3.0% 1.0% Effective 4.0% 0.0% 0.0% 0.0% Development Needed 0.0% 0.0% 0.0% 0.0% Critical Need for Improvement 0.0% 0.0% 0.0% 0.0% 22

23 Compensation Strategies in the Rebounding Economy Merit Matrix Cost neutral Rewards performance Targeted turnover Fair and efficient method for administering pay Accelerates employees to market competitive pay levels 23

24 Compensation Strategies in the Rebounding Economy Merit Matrix Common Pitfalls Structures out of alignment with market Garbage in, garbage out May improperly allocate limited salary increase dollars based upon the current competitiveness of pay Performance scores not calibrated Supervisors can learn to game the system Cheating is rewarded Top performers may not be properly rewarded Matrix results outside of budget 24

25 Additional Considerations Nonprofit compensation Defense contractor compensation Fair pay based on race and gender Online performance management Sales compensation 25

26 Questions? Ed Rataj, CCP Managing Director Compensation Consulting CBIZ Human Capital Services (314)