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

3 Tips for Updating Your Compensation Program

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Updating your salary structure? Market data discrepancies, pay compression, and alignment with the compensation philosophy are all problems employers experience when updating their compensation programs. Here are some tips to deal with these problems:

Problem 1: Market data shows discrepancies

You’ve established pay rates for your organization’s positions based on a salary survey, but the next year the same survey shows that a given job encountered a moderate salary decrease or large increase. Market data discrepancies are a common problem many employers face when updating their compensation programs.

Salary surveys sometimes show discrepancies annually. These discrepancies occur mainly from differences in participation from year to year (different or new employers submitting data for the job). Other reasons for discrepancies may include organizational factors, such as pay decreases or large merit increases and higher or lower demand for certain skills or jobs in the labor market. To cope with market discrepancies...

  • Use multiple sources of market data (salary survey information) to establish market averages to benchmark your positions versus just using one source. By taking more data into account when benchmarking, you dilute the impact of these market differences on your pay decisions.
  • Although it may be tempting to use the most specific and targeted breakouts available to make pay decisions, these are often more susceptible to variance and discrepancies because they have lower participation. As a general rule, it’s important to use breakouts of data that have the most participation from employers (such as “all employers”). These are the most reliable figures and are unlikely to experience major differences year over year. 
  • Be cautious in making pay decisions annually. Continue to benchmark pay on an annual basis, but only make pay decisions based on distinct trends. Market data is highly susceptible to variance and trends are more likely to become evident over multiple years.

Problem 2: Jobs show pay compression

Pay compression is a common problem organizations experience when revising their pay structures. It results when there is a pay difference between positions requiring different skills and responsibilities – when lower-level jobs are paid as much or more than higher-level jobs. It often occurs when typical adjustments or increases have not been given and instead pay raises are only given to a select few employees (such as top performers). It may also occur when a salary structure is not used. To resolve the issue of pay compression…

  • Determine which positions show pay compression. Is it a job-specific issue, affecting only one or a few employees? Or is it a widespread problem?
  • Create a salary structure with formal pay ranges. This will set the upper and lower limits of pay that employees can earn for a given job or job family. Keep pay ranges updated once they are established.
  • Consider coupling your market analysis with a job evaluation. Job evaluation is often an under-used method of determine pay rates, however, establishes which jobs are most and least valuable to the organization and thereby encourages internal equity. It involves assigning points or ranking jobs according to their value to the organization.
  • If ranges are established, adjust pay ranges by the same figure each year – such as a cost of living or across-the-board increase to ensure that pay keeps in line with the market.
  • Consider using lump sum bonuses instead of merit increases to reward employees who have hit the maximum in their pay range. Similarly, for new-hires with special skill-sets, you may consider offering a lump-sum sign-on bonus.
  • Establish career paths. Pay compression is more likely to occur in organizations that do not have clear advancement opportunities and upward mobility. Such paths provide more opportunities to earn more pay and reward performance. 

Problem 3: Pay not aligned with compensation philosophy

Let’s say that your organization’s compensation philosophy is to pay all of your organization’s jobs at market, which means at the 50th percentile or median pay rate. Perhaps this philosophy has been newly developed or changed since the creation of your current pay structure. After analyzing the market, you find that you are actually paying above or below market for some positions. This is your organization’s position to market.

Your organization’s position to market should not necessarily determine its compensation philosophy. For example, if your philosophy is to pay “at market” and your organization pays “below market” for some positions, this should not lead you to change your compensation philosophy, unless it feels that this is best for the organization’s attraction and retention of talent. To address this problem...

  • Determine whether the philosophy applies to all positions. It’s important to be aware that a compensation philosophy does not need to apply for all positions.
  • Keep pay where it is and “red line” the employees paid above market until the market catches up to their pay rates.
  • Make pay adjustments to employees paid below market, unless reasons for this discrepancy are justifiable.
  • Hire new employees at the “at market” rate.

Updating a compensation structure presents its challenges for many employers, and can be one of the more complex tasks HR encounters. Should your organization need additional assistance with updating its compensation system, be sure to check out the resources ERC offers to support your compensation programs below.

Additional Resources

HR Consulting
Our compensation consulting services cover a broad range of assistance on the total rewards spectrum; from basic job description updates to the complete design of organization-wide base salary compensation systems and variable pay programs. For more information, please contact consulting@yourerc.com.

Northeast Ohio Employers Report Higher Pay for Customer Service Jobs

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According to the 2010-2011 EAA National Sales Compensation & Practices Survey, Northeast Ohio employers report higher median total compensation than employers across the U.S. for nearly all customer service positions surveyed.

Customer Service Managers and Supervisors, in particular, showed the largest differences in total compensation when compared nationally.

 

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8 Steps in a Compensation Project

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8 Steps in a Compensation Project

Compensation initiatives are often on many employers’ agendas, so we’ve summarized eight (8) steps in a basic compensation project.

1. Participate in or purchase salary and wage surveys.

It all starts with having pay data, which is the basis for all compensation systems and projects. Compensation surveys contain information on competitive wages and salaries for various jobs and report data regarding what other employers pay for given positions. Participating in these surveys (which generally requires reporting your employees’ salary and wage information) typically helps organizations save money on receiving the data. 

A good rule of thumb is obtaining at least three survey or compensation data sources. Local resources are ideal, especially if your organization recruits locally.

For example, ERC’s Salary Survey and Wage Survey are a common resource used by many Northeast Ohio employers to benchmark local pay rates.

2. Identify matches for your organization’s jobs.

Once you obtain salary survey information, the next step is identifying the positions in the surveys that match the jobs in your organization. This is generally not done by job title alone.

Instead, employers look for jobs with position descriptions that match at least 70% of the duties summarized.

For some unique positions, it may be difficult to find an exact match. In these cases, organizations typically blend or weight salary data from multiple jobs to create a salary figure that best represents the job.

3. Select and gather data.

After your organization has selected the positions that match, you’ll need to determine what percentile or metric from the survey you would like to use to compare your jobs.

Organizations commonly select this based on their pay philosophy for different positions. Employers may wish to pay some positions above market rates (percentiles above the median) because talent is scarce or the job is critical to their organization’s strategy or mission.

Other positions may be paid below market rates (percentiles below the median) if they lack importance or are easily recruited. The widespread majority of organizations aim to pay most of their employees at market (the median). You can also use the average; however, the median is less susceptible to higher or lower values, and therefore more reliable.

4. Analyze the data.

In order to analyze the salary information, organizations should age the data to a common point in time by an aging factor—such as an average yearly increase (obtained in a compensation survey).  After aging the data, the percentile information gathered from each of the survey sources can be weighted based on factors such as industry data, local or national information, quality of survey, and strength of job match.

Typically, a weighted average is calculated based on these weightings of the survey sources and the percentile information.

This weighted average is usually referred to as the “market average.” Although, there are certainly other metrics of market competitiveness your organization could use.

5. Calculate a market average.

For each job you are analyzing, it’s important to determine where the job stands relative to the market. This is easily done by dividing what your organization currently pays for the position (the current salary or wage) by the market average.

Figures over 1.0 indicate that the job is paid more than the market average; while figures below 1.0 show that the job is paid less than the market average.

While other metrics exist, this tends to be the easiest to calculate for employers.

6. Create a pay structure.

 

7. Address inconsistencies.

After your organization has collected and analyzed the market data and/or developed any pay structures it deems important to its compensation administration, the next step is to address differences or inconsistencies, particularly in terms of differences in market averages/midpoints and rates your organization is paying for positions and external market rates.

These questions often involve considering organizational culture, structure, what it can afford to pay, and what it wants to pay for certain positions.

8. Make adjustment decisions.

After these questions are addressed, your organization will need to determine whether it wants to adjust salaries and wages to be more in line with the market (if differences exist). These are typically termed “market adjustments.”

Other pay adjustments your organization may provide include cost-of-living or across the board adjustments (the same adjustment being provided to all employees), or merit increases, which are commonly based on performance achieved and varied in terms of amount received (typically a percentage of base salary).

There’s no question that compensation initiatives can be challenging projects and typically include more complexity and analysis than these eight steps suggest. Keep in mind that ERC has many resources, including valid local and national pay data and experienced guidance, available to help you in navigating these projects with ease and success.

ERC offers compensation and benefits consulting services including market pricing, total rewards strategy, and more.

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Manufacturing Jobs: Local Pay vs. National Pay

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A 2010-2011 survey released by ERC shows how pay for common manufacturing and production jobs in Northeast Ohio compares to pay provided by employers across the U.S, based on data from the recently published 2010-2011 EAA National Wage & Salary Survey.

Comparison of National & Northeast Ohio Median Salaries for Select Manufacturing/Production Positions

*Reflects data from the 2010-2011 EAA National Wage & Salary Survey

 

Survey Reports National Pay Trends for HR Positions

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A 2011 analysis conducted by ERC reports how pay for various HR positions in Northeast Ohio compares to pay provided by employers across the U.S, based on data from the 2010-2011 EAA National Wage & Salary Survey. In general, a comparison of salaries for HR positions among employers across the U.S. and just Northeast Ohio employers shows that local employers pay higher-level HR positions (manager and above) near or above the median salary reported by employers across the U.S. Local employers, however, appear to be pay lower-level HR positions, such as generalists and assistants, lower than the median salary reported by employers across the U.S.

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

Workplace Gift-Giving & Bonuses

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Giving employees a year-end gift or bonus this year? Here are a few common questions and answers employers ask us about issues related to giving gifts and bonuses to their staff.

How common is gift-giving in the workplace?

Gift-giving is a fairly common practice among organizations. In ERC’s 2010 Holiday Practices in the Workplace Survey, 51% of local employers give gifts to employees. A 2010 survey conducted by BNA shows that 41% of employers across the U.S. plan to provide a year-end gift or bonus to employees, and also reports that this is the highest percent in three years.

What is the most popular holiday gift given by employers?

We find that the most common holiday gift is a generic gift card. In a 2010 survey of local employers, 61% said they provide this type of gift. Some employers also give cash, food (such as a turkey or ham), clothing or logo items, or gift baskets. In addition, a few employers raffle-off gifts versus providing them to all employees. Spending amounts for employee gifts typically range from $25-$75 per employee.

Are there any legal or payroll issues we need to be aware of when giving holiday gifts to our employees?

The IRS has different tax reporting and deduction rules depending on the cost of the gift and whether it is considered tangible (ham, turkey, wine, entertainment tickets etc.) or intangible (cash, gift cards or certificates, etc.). Intangible gifts of more than $25 are taxable income and must be reported on a W-2 form. Tangible gifts do not need to be reported in taxes. Employers can deduct up to a maximum of $25 of the cost of both intangible and tangible gifts, according to IRS guidelines.

Should we allow for gift-giving between coworkers and/or bosses?

Some organizations choose to institute a gift-giving policy on the types of gifts their employees can give and receive in the workplace. While instituting such a policy can decrease the likelihood that employees will encounter uncomfortable situations surrounding giving gifts, gift-giving can be a nice way for coworkers and supervisors to show appreciation to one another that employers may not want to limit. In general, however, gift-giving etiquette is as follows:

  • Gift-giving should be considered voluntary. No one should feel pressured, obligated, or required to give gifts.
  • Gift-giving should also be kept relatively inexpensive, simple, and modest. Several sources suggest that $10-$20 is an acceptable amount to spend on gifts for coworkers or bosses.
  • Gift-giving should be appropriate for the workplace. Alcohol, gifts with political or religious messages, romantic gifts, and hygiene-related items are typically considered inappropriate holiday gifts. Tasteful and professional gifts, cards, treating to lunch, or even donating to a charity on behalf of an individual are all appropriate ways to show appreciation.
  • Group gifts are generally an acceptable way of thanking a supervisor/manager versus an individual gift. 
  • If supervisors or managers choose to give gifts to their employees, it’s best that they are given to everyone versus only certain individuals to prevent perceptions of favoritism or unequal treatment.

Employers should consider their culture before instituting any rules as there is no gift-giving best practice that works for all organizations. Some workplaces are more formal, and others are more family-oriented, and gift-giving should generally align with the culture.

How common are holiday bonuses?

Nearly a third of local employers provide holiday bonuses, according to a 2010 ERC survey. Certainly this isn’t the majority of employers; however, it is a sizeable portion. Recent reports, however, do indicate that the holiday bonus is diminishing in popularity. Discretionary or individual performance bonuses, on the other hand, tend to be more commonly offered by employers.

What criteria should we use to determine who gets a holiday bonus?

That depends. Some employers use a holiday bonus as employees’ gift versus a reward for attaining a certain level of performance. Others only provide holiday bonuses to employees who meet certain criteria such as performance, attendance, or length of service.

How much should we spend on a holiday bonus per employee?

Bonus amounts typically range from $200-$1000 or 2% of earnings with the average being $712. The most popular bonus amounts are $200 and $1000. However, $300 and $500 are also somewhat common. Also remember that bonuses are taxable, per the IRS.

What issues should we keep in mind when providing our employees with holiday bonuses?

First, if bonuses are regularly given at your organization, it may be helpful to develop a policy which includes eligibility requirements for the bonus, criteria for receiving the bonus (i.e. average performance ratings, length of employment, etc.), how the amount of the bonus is determined (i.e. based on company profit, revenue, etc.), when the payments will be awarded, and any legal guidelines or requirements the program is subject to. A disclaimer is also recommended, so that the organization can reserve the right to administer, modify, or terminate the program at any time, should business needs dictate.

Also, make sure your organization is compliant with the Fair Labor Standards Act (FLSA). Bonuses given to employees for performance, productivity or quality need to be included in calculating an employee’s regular rate for overtime purposes. However, holiday/gift bonuses can be excluded when calculating overtime rates for non-exempt employees if they are not linked to hours worked or production.

Finally, if your organization provides holiday bonuses based on certain criteria, but not to all employees, be sure that you have documented why or why not employees have not earned the bonus to avoid any potential legal issues surrounding discriminative treatment. Performance documentation is crucial for your organization’s legal protection.

Gift-giving and bonuses are certainly great ways to show your employees appreciation and recognition during these final weeks of the year. To obtain answers to other questions related to gift-giving and bonuses, please contact ERC’s HR Help Desk (Members Only) at hrhelp@yourERC.com.