Where Do Pay Adjustments Come From?

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As reported in Crain’s Cleveland Business in September of 2012, Northeast Ohio employers both gave and are projecting giving an average of a 3% increase across all job categories in 2012 and 2013, respectively. But how are these increases determined and what do they mean in terms of an overall investment by the organizations offering raises?

While the ERC Salary & Wage Adjustment Survey itself does not report on these specifics, it does specify that that this 3% increase accounts for any pay adjustment given during a 12 month period and could include any adjustments from general across-the-board or cost-of-living adjustments to merit based raises. Some additional insights can be drawn from another ERC survey published in early summer of 2012, i.e., the 2012 Pay Adjustment & Incentives Practices Survey. According to this survey, merit based increases are by far the most common method of determining increases here in Northeast Ohio, approximately 80% of respondents. Of those organizations providing merit based increases, a wide majority do so on an annual basis regardless of organizational size or industry type. Interestingly, cost-of-living raises were the least popular type of adjustment, coming in at just under 7%.

Based on ERC’s historical data trends for the Pay Adjustment & Incentive Practices survey, this strong preference for merit based pay adjustments is far from surprising. However, a steady decrease in cost-of-living pay adjustments over the past several years accompanied by a corresponding increase in the frequency of merit-based raises offers a clear illustration of the continued move towards pay-for-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

2012/2013 Salary & Benefits Budgeting Guide

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We’ve compiled a brief compensation and benefits budgeting guide to help your organization make important pay and health care decisions for fall 2012. The guide summarizes the latest and most important trends as of September, 2012 related to administering compensation and health care benefits, which affect your organization as it plans for 2013. 
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Raises Hit 3%, Projections Remain Strong

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In an economy fraught with ongoing uncertainty, Northeast Ohio employers hit a once seemingly insignificant milestone in terms of salary and wage adjustments for 2012 and 2013, 3% raises. The overall average actual and projected raises reported in ERC’s annual Wage and Salary Adjustment Survey both hit 3%, the first time both figures have reached the 3% mark together since 2008. Further optimism for 2012 can be found in projections for 2013, which indicate that of those organizations projecting raises for 2013, more than half are predicting at least 3% raises.

In terms of actual percent raises offered by individual industries, a 2012 article from Crain’s Cleveland Business cites ERC’s survey results, noting, “when it came to actual raises, service companies loosened the purse strings a little more than manufacturers.” However, there are positive signs for the manufacturing industry as well.
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5 Measurements to Evaluate Salaries

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6 Tools to Evaluate Salaries

Does your organization know the health of its base salary program? The health of your base salary practices can easily fly under the radar if you aren't paying attention to certain important numbers. It may result in overpaying or underpaying employees, employees being paid outside of pay ranges, an uncompetitive mix of pay forms, or a low revenue return on your costly investments.

There are several "tools" (i.e. calculations or measurements) that you can use to evaluate the health of your base salary program, six of which are among those that most compensation experts agree are the best and most common tools to use.
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Engineering Salaries Continue to Thrive

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Once again the ERC Salary Survey demonstrates the strength of the region’s Engineering industry. The 2012 Salary survey reports data on 38 separate engineering positions, with the bulk of the job titles falling into the “Professional” job classification. The strength of the industry is further reinforced by comparing median salaries among engineering positions in lower level job classifications to other job titles outside of engineering. For example, Service Installation Representatives (both junior and senior level) make up 2 of only 9 office/clerical positions with median salaries over $40,000. Similarly, at the supervisory and managerial level, the median salaries for engineering jobs all fall within the top 40%- with Engineering Manager / Chief Engineer near the very top of the list as one of only seven jobs reporting a median salary at $100,000 or above.

Despite strong local salary data trends, national employment trends suggest that the engineering field may be mixed in terms of job growth projections depending on the specific position. In particular the BLS Occupational Outlook Handbook in 2012-2013 notes that in terms of job growth engineering positions based in manufacturing may struggle to keep pace with those in service industries and architectural fields. However, with an average project job growth rate from 2012-2020 of 10% and much higher for niche areas such Biomedical Engineers (62% job growth) and Environmental Engineering Technicians (24% job growth), engineering appears to be more than capable of sustaining and even improving upon these salary numbers for the foreseeable future.

Additional Resources

To purchase or view the most recent ERC Salary Survey, click here. Or, e-mail surveys@yourerc.om or call 440-684-9700.

Salaries in Healthcare Sector Reflect Demand

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Here in Northeast Ohio the prominence of our healthcare industry is often touted as one of the region’s greatest strengths. In terms of sheer volume, health care represents a significant proportion of the workforce- approximately 16% according to the 2012 Current Employment Statistics survey for non-agricultural jobs in the Cleveland-Elyria-mentor Metropolitan Statistic Area (MSA).

However, for those 155,400 individuals employed in healthcare/social assistance, being part of the workforce for this booming industry does not always translate into higher levels of compensation. In fact, using data from several ERC Compensation Surveys to perform an occupation specific analysis for 40 job categories placed two occupational subcategories within the healthcare industry, i.e. Patient/Client Services and Social Work, among the 10 lowest paying job categories in Northeast Ohio. Conversely, Clinical Healthcare Practitioners and Nurses came in as two of the 10 highest paying job categories in the region according to this 2012 data. 

Nursing, coming in as the fourth highest paid occupation in the analysis, is one of only a few positions that pay above the national median salary reported by the Bureau of Labor Statistics. As noted in a recent article from Crain’s Cleveland Business, registered nurses in particular can expect to remain in high demand across local healthcare systems. Clearly this demand for specialized, skilled talent is a key factor driving up rates of compensation within Nursing and among Clinical Healthcare Practitioners more generally.

At the opposite end of the spectrum the Patient/Client Services category includes a wide variety of jobs in healthcare, but with two important items in common, fairly low education and skill requirements and often highly repetitive job duties. A notable exception to this generalization that lower skills equate to lower pay, is in the field of Social Work. According to the 2011 ERC Non-Profit Benefits Survey, one way organizations often look to counteract this low market valuation of Health and Human Services positions such as Social Workers is to offer a unique array of other non-cash benefits that serve to enhance the total rewards package employees in these positions receive.

Additional Resources

ERC Non-Profit Compensation & Benefits Surveys
ERC, in partnership with United Way of Greater Cleveland, has created compensation and benefits surveys to help non-profits in Northeast Ohio gauge their compensation and benefits practices. Through this exclusive partnership, United Way Agencies that participate in these surveys will receive the survey results for no cost. Participate in our Compensation and Benefit Surveys by clicking here.

*The average median base salary figure for each occupation was calculated using data excerpts from the following surveys conducted by ERC: 2012 ERC Salary Survey, 2012 ERC Wage Survey and 2011 ERC Non-Profit Compensation Survey. Please note that the salary figure reported for each occupational category is an average of median salaries across applicable job titles from entry level up through management level positions.

More Northeast Ohio Employers Projecting Salary Increases for 2012

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Data from the 2012 ERC Pay Adjustment & Incentive Practices Survey indicates that the increases being projected by Northeast Ohio employers are representative of a larger national trend of compensation practices. Of the 114 participating organizations, 89% are projecting salary and wage increases for 2012, a record high level since 2009 when only 45% of survey participants projected increases. This improvement falls just short of improvements found in national data reported by SHRM in an article from 2011.
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Northeast Ohio CEO’s Total Compensation Among Top In Nation

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According to the results of the 2012 National Executive Compensation Survey, CEOs here in Northeast Ohio receive the fourth highest total compensation package as compared to 20 other geographic regions reported in the survey. Coming in at $308,500, Northeast Ohio CEOs rounds out a strong showing for the Midwest, with the Columbus/Cincinnati breakout and Detroit Metro area in the first and third spots respectively in terms of total compensation for CEOs in their regions.

Base salary accounts for approximately 75% of the total compensation package in Northeast Ohio, a rate which suggests that area CEO’s receive a larger portion of their compensation in the form of variable pay than in the vast majority of other regions reported in the national sample. By focusing on variable pay, such as bonuses and other short term incentives, employers are able to more closely tie executive pay to performance. Establishing a clear connection between the value a CEO adds to the company and the compensation they receive in return is a critical step forward and a growing trend in executive pay, both for the sake of internal equity as well as to ensure compliance with external regulations.

Of the 47 executive positions survey across the national sample, increases to base pay remain stable- right at 3% for 2012. When calculated only including those organizations who projected increases, this number is a slightly higher figure, but one that continues to hover around the 4% mark for these executive type positions.

Additional Resources

2012 EAA National Executive Compensation Survey
The 2012 EAA National Executive Compensation Survey, published in May of 2012, reports compensation, benefits, and pay practice data provided by 2,235 participating organizations throughout the country and 108 organizations in Northeast Ohio for 11,948 executives in 47 positions. Breakouts of data are included across five variables: sales volume, organizational size, industry, organization type, and geographic location – including Northeast Ohio. Download the survey here.

2012 ERC Performance Management Practices Survey
This survey collects information from Northeast Ohio organizations on performance management practices in the workplace, specifically related to performance reviews, performance criteria, role of the supervisor in managing performance and other performance management issues. Click here to view the survey.

How to Pay a Fair Salary: 5 Principles

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It probably seems like some of your employees are never satisfied with their salaries and that fair pay is always an issue needing to be addressed with either job applicants or current employees. If your organization and its managers haven’t heard the following questions and complaints from your current or prospective workforce, consider yourself among the lucky few...

  • “I do the work of 2 people, why aren’t I paid more?”
  • “If I’m doing a great job, why aren’t I getting a bigger pay adjustment than 2%?”
  • "Can you pay me 'x' for the job given my credentials?"
  • “The company had a record year last year and we didn’t receive a bonus or raise.”
  • “I haven’t gotten a pay raise in 3 years.”
  • “I’m working harder than ever with fewer resources and my pay doesn’t reflect my contributions.”
  • “Why don’t we get cost-of-living increases?”
  • “Why is she paid more than me when she does less work and performs worse?”
  • “The company down the street pays more for this job.”
  • “I found data on the internet which says that I should be paid 'x' for my position.”

These salary questions are tough and complicated for employers. They don’t have easy answers. Plus, with the wide availability of pay information on the internet, employees can quickly become skeptical of your pay practices if they don’t match or seem fair to what they see, hear and read online.

What’s an employer to do? Try to keep salaries as fair as possible and ward off perceptions of inequity as best they can, keeping in mind the needs of the business and market. Below are 5 widely accepted comp principles that employers have successfully used to keep pay fair and complaints to a minimum.

Principle 1: Play to the market.

The best way to stay on track with compensation is to know what your immediate, local competitors are paying and how they pay. Conduct thorough market analyses. Look at details like county and industry comparisons. Consider years of experience and education factors. Explore how other employers pay – do they offer variable pay, merit increases, pay premiums or bonuses in addition to base pay? These factors can lead to substantial differences in total pay.

Principle 2: Make internal comparisons.

What are you paying a premium for at your organization? Are certain skills, behaviors or job attributes more valuable than others to your business? Should they be paid a premium as a result? Who is most important to your company? Comparing the value of positions in the organization can help make sure that employees are paid fairly in relationship to their contributions to the business. Just make sure employees know what skills and attributes are valued.

Principle 3: Directly tie pay to performance.

One of the biggest criticisms employees have about their pay is when underperformers are paid as much as them and when working hard and performing well doesn’t necessarily bring a higher pay raise. It can be frustrating to your highest performers when better performance doesn’t equal better pay. That's why it's critical to accurately measure performance regularly and reward it with pay increases or variable pay.

Principle 4: Share the wealth.

If your organization is having record financial years, employees will eventually notice and become disenchanted if they aren't able to share in the wealth and success they helped create. The majority of employers share their business' financial success with their employees in some way, such as bonuses, profit-sharing and merit increases. Their pay should be tied to your organizational results. If pay can't be adjusted, consider other rewards to recognize employees.

Principle 5: Provide a living wage.

This means compensating employees in a way that allows them to meet their basic needs. When there is a consistent problem or complaint of not being able live on a certain amount of compensation, consider exploring your pay practices and how they meet your talent’s needs. If a segment of your workforce can't survive on what they are being paid, then it may be time to re-evaluate your pay practices, even if the market differs. Take care of your own.

Fair and competitive salaries are absolutely essential for attracting, motivating and retaining employees. When unfair pay is a main issue in a segment of your organization, use these five principles and adjust your pay practices accordingly.

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

The Best Solution to Managing Salary Costs

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Like most employers, you’ve probably been faced with the challenge of how to manage rising salary increase budgets, reward high performers, and sustain your organization’s financial health by meeting and exceeding margins achieved in past years. How do you manage these critically important yet competing demands? The best solution is to develop a variable pay program.

Variable pay: A solution to base pay management

Variable pay is one of the best solutions to confronting the problem of base salary increases. It is much less expensive to manage than annual base pay merit increases, doesn’t compound salaries over time, and can deliver meaningful rewards and additional compensation to employees without long-term hits to your margins.

Generally, it takes approximately $5 of variable pay to deliver the same financial effect of a one dollar salary increase. Additionally, base compensation costs account for about 20-25% of your revenue, whereas variable pay costs account for about 3-4% of your revenue (on average). As a result, variable pay can be a huge savings for any employer.

Executing variable pay: Paying for performance

Fundamental to variable pay is the issue of pay for performance. Variable pay requires differentiating pay by some factor, usually individual and/or company performance.

This means differentiating pay by performance and allocating all (or most) of your organization’s pay rewards to your highest performers and reducing rewards for your average or bottom performers. It also means that additional pay is entirely dependent on how your organization performs, which can ensure that your organization’s financials remain healthy and that financial performance targets are met year over year.

The trouble with pay for performance is in the execution. For it to work, you need a culture that rewards high performance; standard performance management systems which give employees the insights, tools, support, and clarity they need to reach their goals and managers the tools to evaluate and objectively compare performance; as well as meaningful payouts.

Here are proven best-practices for executing variable pay when it comes to managing these issues related to culture, performance, and payouts:

Culture

  • Types of variable pay offered match the culture. For example, strong emphasis on teamwork = team-oriented variable pay.
  • Leaders support a performance-oriented workplace and encourage rewarding “A-players.”
  • Tenure, attendance, and other non-performance related factors are not considered when making decisions about pay, rewards, or promotions.
  • Pay for performance is widespread. Everyone has the opportunity to earn more pay based on their performance – not just execs, managers, and sales staff.

Performance management

  • Goals are clear and achievable. Employees understand how to accomplish their targets.
  • A manageable number of targets are given – ideally 1 to 3 important goals.
  • Accurate measures of performance are intact and not subject to extraneous factors.
  • Performance is regularly tracked, monitored, and well-documented.
  • Performance is well-managed. Employees are coaching, re-directed, and assisted in reaching targets.

Payout

  • Payouts are substantial enough to be perceived as beneficial, motivating rewards.
  • Differentiation of pay and/or rewards is enough to be meaningful for high performers. Strive for 2 times the average payout to reward your highest performers.
  • Tiers for payouts are set to reward employees for meeting minimum goals as well as stretch goals.
  • Minimum and maximum thresholds for targets and payouts are provided.

Variable pay programs are promising and highly effective. If your organization is challenged in sustaining its annual merit increase program and controlling base pay costs, variable pay can be an advantageous solution. Just keep these best practices in mind before designing a variable pay program to ensure that the program is successful and delivers results.

Additional Resources

Performance Management Services ERC can support performance management initiatives through performance management system development, performance review form development, competency development, consulting on performance management issues, performance management/goal-setting training for employees and supervisors, and more.