7 Common Compensation Questions

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Types of sources to use, frequency of market studies, handling employee questions about fairness, etc. -  these are just a few of many compensation issues and questions that you face every day. We've compiled answers to some of the most frequently asked questions we receive related to compensation.

What sources do most employers use to benchmark compensation?

Most employers use more than one salary data source to make compensation decisions. Common choices of salary data sources include Mercer, Willis Towers Watson, Kenexa, CompAnalyst, ERI, and Aon Hewitt. Local, state, and industry-specific surveys are also used, particularly in organizations with fewer than 200 employees.

How frequently should we be formally reviewing compensation?

The best practice is at least every two years; however, if your organization has made a number of changes to jobs, has fallen behind on benchmarking pay in the past few years, is competing for hard-to-find talent, or is focused on retaining above average talent, then it may consider benchmarking compensation more frequently. In these cases, we suggest an annual review. Although you may only formally review compensation every other year, it's important to at least stay abreast of the latest compensation trends each year and review key positions. You need to make sure that your key players' pay is in line with the market at all times.

What's the future outlook for compensation?

Salary increase budgets in the U.S. are expected to remain at about 3%, consistent with many past years.  However, the rate of pay acceleration has in the market has increased dramatically which makes the need to watch for market related changes in pay that much more important. 

How do the rising costs of benefits play into compensation decisions?

Some employers have questions about how the rising costs of health care and other benefits play into decisions about compensation. Benefits and health care costs have become a larger component of the total compensation package offered to employees, so it's more important than ever before that employers are looking at total compensation in addition to base pay in order to make appropriate pay decisions. There's also no question that rising benefits costs and uncertainty about the Affordable Health Care Act will likely be a consideration in overall costs.  That's why it's important to review benefits and pay data annually to make sure you're in line with the market on both. This will provide you more insight on what changes you need to make in terms of cost-sharing, benefits contributions, and pay increases.

How should I evaluate compensation data?

There are a few key things to look for when evaluating compensation survey data. First, you will want to make certain you utilize credible, employer reported data from robust and reliable sources. Second, you'll want to research who participated in the survey and what geographic region the survey represents. Third, make sure you also know when the survey data is effective so that you make appropriate aging adjustments to ensure that you are comparing data according to consistent time periods. Fourth, look at participation in the survey, specifically the number of employers participating for each breakout reported. Breakouts which have statistically significant participation are more reliable than breakouts with limited reporting.  That's why you may see less reliable salary trends in positions that have less participation.

What should we do if we find that pay isn't in line with the market?

Nothing or something -- it all depends on your compensation philosophy, what the position is, which employee is in the position, and your ability to make the change. If the employee is a solid performer, your philosophy is to pay at or above market, and the position is valuable to your organization, you should consider a phased approach to adjusting an employee's pay to market-competitive levels. If the employee is a bottom performer and their position isn't valued, sometimes it's okay to do nothing. As an employer, you don't have to make pay adjustments unless you feel they are warranted and worthwhile.

One of my employees thinks their pay is unfair, what should I do?

Employees often question the competitiveness and fairness of their compensation and how they are paid relative to employees in similar roles at other organizations. Let's just say that pay is never a workplace issue with which employees are most satisfied. This often stems from lack of transparency with regard to compensation administration and the proliferation of unreliable, employee-reported pay data available online. Nonetheless, there are a number of things you can do to make sure employees are aware of the steps your organization takes to keep compensation competitive and to make sure the process is as transparent as possible.

  • Do your homework. Conduct market studies to see how employees' pay stacks up to other organizations.
  • Create and communicate a compensation philosophy or policy about how your organization intends to pay employees relative to the market. Most importantly, make sure employees understand it.
  • Explain the salary survey sources you use to benchmark compensation.
  • Show employees how you pay them relative to the market, such as actual market or survey data.
  • Communicate the process by which your organization makes compensation decisions as transparently as possible. It will make the process seem less mysterious and secretive.
  • Provide total compensation or rewards statements. Employees often don't realize how much they are earning in benefits and other perks your organization provides and these figures usually surprise them.

It's important to note that even despite your organization's best efforts to be transparent, there will always be a number of employees who aren't satisfied with their pay. This is natural and common and isn't anything to be concerned about provided your programs and administration are legally compliant and you are attracting and retaining top talent.

 

Compensation & Benefits Consulting

Compensation & Benefits Consulting

ERC offers a variety of compensation and benefits consulting services including competitive market pay analysis, salary structure design, total rewards strategy, variable pay design, and more!

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Training Salaries on the Rise

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According to the 2012 EAA National Wage & Salary Survey, salaries for training professionals rose from 2011. In particular, the median salary for Training Specialist I showed the highest increase of 8% from 2011 when compared with other training jobs surveyed. Similarly, the median salary for Training Managers saw an above average increase of 5%.

The data reported in this survey seems consistent with other salary trends reported by the American Society of Training & Development (ASTD) indicating that compensation for training, learning, and development professionals' exceeds the average U.S. income of $46,000 and that the majority of learning and development professionals received a pay raise within the past year.

These trends could suggest increasing demand for training and development professionals nationwide as organizations  continue to expand their training practices and enhance their learning and development activities.

For more information about the 2012 EAA National Wage & Salary Survey or to purchase it, please click here.

2012 Compensation Surveys - Open for Participation

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Our 2012 Executive, Salary, & Wage Surveys are open for participation. These surveys collect compensation data on over 400 executive, director-level, administrative, professional, managerial, and hourly positions.

2012 ERC Salary Survey

This survey collects annual salary information from Northeast Ohio organizations for 279 administrative, professional, supervisory, and managerial positions in accounting, finance, administration, customer service, sales, engineering, human resources, IT, maintenance, marketing, production, purchasing/distribution, safety, science, and research and development functions. Salary data will be reported by number of employees, industry type, annual revenue, county, for-profit or non-profit status, and years of experience (including new hires) when the results are published in May.

To participate, visit http://www.yourerc.com/survey-data/participate/ and register as a first time user.

2012 ERC Wage Survey

This survey collects hourly pay information from Northeast Ohio organizations for 109 production, maintenance, warehouse, distribution, and transportation positions. Wage data will be reported by number of employees, industry type, annual revenue, county, union affiliation, and years of experience (including new hires) when the results are published in May.

To participate, visit http://www.yourerc.com/survey-data/participate/ and register as a first time user.

2012 EAA National Executive Compensation Survey

This survey collects salary, bonus/incentive, benefits, and perquisite information for 47 executive and director-level positions in general, finance, HR, engineering, sales/marketing, international, and non-profit functions as well as Board of Directors pay. Data will be reported by industry, organizational size, location (including Northeast Ohio), and sales volume when the results are published in June.

To participate, contact surveys@yourerc.com for a survey link to participate.

Members that participate in these surveys will receive the results for no cost when they are published in May/June of 2012. Non-members that participate in these surveys will receive the results at a discount.

Employers Tend to Pay Shift Employees More

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Employers Tend to Pay Shift Employees More

The results of the 2011 ERC Pay Differential Survey show that Northeast Ohio employers tend to pay shift employees more than non-shift employees, specifically those that work second and third shifts.

Sixty-six percent of employers offer shift differentials for second shifts on weekdays and 55% provide shift differentials for third shifts on weekdays.

Organizations typically provide a flat premium amount per hour as a pay differential, and on average, provide a larger pay differential to employees working weekday third shifts than employees on weekday second shifts.

Employers reported providing the largest pay differential to production, maintenance, and service leads or group leaders on both weekday second and third shifts.

Employees in non-standard shifts experience more challenges such as disrupted sleep cycles, difficulties maintaining family routines, and less social exposure than weekday first shift employees.

As a result, pay differentials are a useful tool that employers can use to incent employees to work second and third shifts or recruit employees for these roles.

View ERC's Pay Differential Survey Survey Results

This survey reports on common pay differentials from Northeast Ohio employers for hourly employees, including shift differentials, lead premiums, overtime, and on-call pay practices.

View the Results

Professional Services Employers Tend to Pay Higher Increases

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According to the 2011 NorthCoast 99 Winners Report, pay increases vary considerably by industry, as does the amount in which those increases are differentiated by performance.

The report shows that winners in professional services industries reported higher increases for 2010 than those in manufacturing, distribution, transportation, health care, and non-profit industries.

Specifically, winners in marketing, technology, and architectural services industries reported providing average increases of 7.8% to top performers – the highest increase reported of all of the industries. Winners in finance, legal, and management services industries also reported above average increases for top performers of 7.3%. These industries also reported higher pay increases across all of their employees as well as for average performers.

Winners in professional services industries also reported more differentiation of pay increases across performance levels. Winners in marketing, technology, and architectural services industries reported an average difference of 4% between top and average performers’ pay increases and 6% between top and bottom performers’ pay increases.

Similarly, winners in finance, legal, and management services industries reported an average difference of 3% between top and average performers’ pay increases and 6% between top and bottom performers’ pay increases. Winners in non-profit and health and human services industries reported the lowest differences in pay increases across performance levels, suggesting that they are less likely to significantly differentiate compensation increases by performance.

View ERC's Wage & Salary Adjustment Survey Results

The survey reports data from Northeast Ohio organizations regarding their actual and projected wage and salary adjustments.

View the Results

5 Pay Trends You Need to Know

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If your organization is in the process of determining compensation for the rest of 2011 and budgeting for 2012, here are 5 important pay trends that you should know related to salary increases and bonuses.

1. Employers are planning salary increases.

The percentage of employers planning salary freezes continues to decrease from 2009, and the number of organizations projecting salary increases continues to rise. In fact, research shows that 82% of employers are providing increases in 2011 and 89% are projecting increases for 2012. This compares to only 55% in 2009 and 59% in 2010 and is approaching 2008 levels when 90% of employers gave increases. These findings are consistent with other national studies which suggest that salary freezes are on the decline.

2. Average salary increases continue to be modest.

Although more employers are planning increases than in the past, they will be modest, hovering around 2.8%-2.9%, which are the average projected increases for 2011 and 2012 cited by numerous surveys. Nonetheless, increases are approaching 3% and some organizations are even exceeding 3%, although very few organizations are budgeting more than 4%. Most compensation experts, however, believe that 3% will be the new 4%. These projections and insights are common across not only our local findings, but also those of WorldatWork, Aon Hewitt, and Towers Watson.

3. Few organizations are recovering pay.

Another trend that has been consistent across numerous compensation budget studies is that few employers are reporting high recovery increases to boost employees’ pay to market levels in spite of their pay freezes over the past few years. Because of this trend, employers may be faced with challenges in retaining employees and especially top talent. This year, studies have shown an uptick in employees dissatisfied with their organization’s compensation practices, especially among those organizations that have not provided increases over the past few years.

4. Merit increases remain the most common.

Merit increases continue to be the most common type of increase provided by organizations, according to most compensation studies, and are differentiated by performance level (by approximately 1.5-2%). Top performers can typically expect increases of 4-5% on average; however, this varies widely by industry. Cost-of-living and across-the-board adjustments are less common, but still used by some employers.

5. There is a positive outlook for bonuses.

Not only are employers continuing to offer bonuses, but they also are more able to fund them. A study conducted by Towers Watson shows that many organizations are experiencing stronger performance in terms of profits and as a result, they expect that annual bonuses will be fully funded in 2011. Bonus trends for 2011 seem to be more positive for many organizations compared to the preceding years. Additionally, other pay for performance trends remain strong including differentiation of merit increases. 

Overall, many studies indicate that the outlook for pay is moving in a positive direction with fewer salary freezes, slightly higher pay increases, and more funding for bonuses. Nonetheless, market adjustments continue to be an area where many employers are lagging and should keep in mind the possible detrimental effects of not recovering pay from salary freezes.

View ERC's Wage & Salary Adjustment Survey Results

The survey reports data from Northeast Ohio organizations regarding their actual and projected wage and salary adjustments.

View the Results

Employers Project Pay Increases of 2.8% for 2012

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The results of the ERC Wage & Salary Adjustment Survey show that Northeast Ohio employers had projected pay increases of 2.8% for 2012. The survey also reports that employers provided actual pay increases of 2.8% in 2011.

Despite no change in the projected average pay increase from 2011, the results of the survey found that more local employers were projecting wage and salary increases than in the years following 2007. Specifically, 89% of the 129 employers surveyed reported projecting pay increases to at least one employee group, up from 55% in 2009 and 82% in 2011.

More employers also projected increases of 3.0% or higher in 2012 when compared to 2011. In the survey, 57% of organizations reported projecting increases of 3.0% or higher in 2012 for clerical, technical, supervisory, management, and professional employees compared to 50% of organizations in 2011. Non-manufacturing employers, in particular, were more likely to project increases of 3.0% or higher for 2012.

View ERC's Wage & Salary Adjustment Survey Results

The survey reports data from Northeast Ohio organizations regarding their actual and projected wage and salary adjustments.

View the Results

10 Ways to Manage Pay & Performance

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10 Ways to Manage Pay & Performance

Most employees want the opportunity to earn more pay based on performance, but such initiatives can be difficult for employers to create and administer. Here are 10 things to consider when managing pay and performance.

1. Does your culture align with a pay for performance program?

To be effective, your organization’s culture should align with a pay for performance program. This means that your organization should be committed to rewarding, recognizing, and promoting top performance, and employees should be aware of this commitment. It’s also important that your culture conveys an atmosphere of fairness and objectivity. Otherwise, pay for performance programs will fall prey to perceptions of subjectivity and bias, limiting their effectiveness.

2. What are the goals of the pay for performance program?

A pay for performance program can have many types of goals such as to improve productivity; increase customer satisfaction; enhance product quality; generate more innovation; boost revenues and profits; or reward top performers. Most goals for a pay for performance program focus on improving individual, team, and/or organizational performance. Be sure that the goals of this program are relevant to the business’s goals and needs.

3. What types of performance criteria will be rewarded?

The goals you define for the pay for performance program help determine what types of performance criteria will be rewarded. For example, if your goal is to increase customer satisfaction, the performance criteria may be customer satisfaction scores, number of customer complaints, or general customer feedback. If your goal is to improve productivity, the performance criteria might be quantity of products created, number of processes streamlined, or behaviors that enhance efficiencies. You may also consider making the performance criteria number of goals achieved or the impact of goals reached.

4. How will performance criteria be measured?

Often employers rely solely on performance reviews to measure criteria for a pay for performance program (i.e. a rating of “5” gets the highest incentive). While performance reviews can be a helpful measure, more objective measures of performance that aren’t as susceptible to rating error, supervisory perceptions and biases, or an ineffective form, should also be considered and used to measure performance criteria. Examples of such measures include goal setting, observable behaviors, and actual results (financial, quantity, or quality measurements).

5. Who will measure the performance and make pay decisions?

Sometimes performance can be measured without an individual, but other times, especially in the case of goal setting, observation, and performance reviews, an individual will need to measure performance , typically a supervisor, manager, or leader. Because these measurements are subject to human error, it’s critical that individuals are trained appropriately. Additionally, your organization will need to determine who will make pay decisions. Will you leave this discretion to your managers, providing them a fund to distribute these rewards?  Will HR or senior leaders be involved in the process, and to what degree? Most organizations involve all three groups at some level.

6. What type of pay for performance will you offer for meeting this performance criteria?

Not surprisingly, the most common types of pay for performance are merit pay, individual incentives, and bonuses. These programs tend to be easiest to administer and focus on individual performance. Increasingly, however, we are seeing some employers offer profit sharing, gain sharing, and employee stock ownership programs. While more complicated to administer, these programs have tremendous value, providing greater transparency and line of sight into organizational performance, reinforcing teamwork and collaboration, and offering employees a greater stake in the organization – giving them a true sense of autonomy and ownership. We find that organizations are offering multiple types of pay for performance for different segments of their workforce. This is ideal when different behaviors or results are desired that don’t necessarily fit one reward approach.

7. How much pay will be based on performance?

The trick to determining how much pay will be based on performance is determining what percent or portion of pay will have an impact on employee motivation or specific results you are seeking. Generally, studies find that when only 2-3% of pay is tied to performance, this is not enough to motivate desired behaviors or results. We have seen organizations reserve 2-4% for salary increases (i.e. cost of living, across-the-board, or merit) and 5-15% for incentive/bonus payout (with 15% typically targeted for executives). For example, NorthCoast 99 winners, provide an average of 10.3% incentive/bonus payout to top performers, 5.6% to average performers, and 7.3% overall.

8. What is the timing of payout for the rewards?

Most employers pay out rewards annually, but depending on the type of program a monthly, quarterly, or biannual payout may be more beneficial. Annual payouts may help your organization better manage costs and ensure that you have the funds to pay incentives to employees; however, there are advantages to paying out more frequently. When rewards are distributed closer to the time they were achieved, employees are more likely to view them as objective and relevant to their performance. In addition, paying out more often reinforces an on-going performance culture in which performance matters all year – not just at year-end – and makes supervisors manage performance on an on-going basis.

9. How will the program be funded and what are you willing to pay (the budget)?

Most pay for performance programs are funded using organizational profits or revenues. In this way, organizations frequently make pay for performance dependent on at least two factors: individual or team performance and organizational performance. Each year, you may budget for a percentage of revenues or profits that will be used to pay for performance. Organizational performance would dictate whether payout can occur.

10. How will the program reinforce other HR programs?

Pay for performance, at its best, reinforces and complements other HR programs and total rewards initiatives. What you reward in a pay for performance program should be similar to what you reward in a recognition program and how you promote people. Be sure to send your employees consistent messages about the results and behaviors you’re looking for, otherwise, your message will be lost.

Variable Pay Plans and Incentive Programs

Variable Pay Plans and Incentive Programs

Variable pay plans can be used as a motivation and retention tool for top performing employees.

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Local Trends in Compensation Policies & Strategies

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According to a research study conducted by ERC, the majority of employers (58%) have no written compensation policy. Twenty-percent of respondents indicate having a compensation policy that is confidential, and 21% have a written or published policy that is made available or distributed to employees.

Despite not having a compensation policy, 62% of employers report having a strategy to stay even with the area labor market and 49% have a strategy to stay even with industry competitors.

ERC's HR Help Desk notes that “the foundation of an effective compensation system is a philosophy, policy, and strategy for how your organization will pay employees relative to the market – whether that is above, at, or below market rates. This helps HR make decisions about pay and guides an organization’s compensation practices."

Additional Resources

Preliminary Findings: Intern & Recent Grad Survey

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The preliminary findings of the 2011 ERC/NOCHE Intern/Recent Grad Pay Rates & Practices Survey show several trends in intern and recent grad employment and compensation practices.

  • Over 70% of employers plan to increase or maintain the number of interns they employ, consistent with trends seen over the past three years.
  • 68% of employers are in the process of hiring or have plans to hire new college graduates this year.
  • Organizations are increasingly using interns and new graduates to develop their talent pipeline rather than using them for simply workforce support and special projects.
  • Nearly three-quarters of employers say that they offer at least some of their interns employment after the internship.
  • Work experience is becoming an even more crucial criterion for employers when hiring interns, rising in importance from years past.

View the Intern & Recent Graduate Pay Rates & Practices Survey

This survey reports data from Northeast Ohio employers about their internship and recent graduate employment and pay practices.

View the Results