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. 

International Sales Managers Earn Higher Salaries in Northeast Ohio & Midwest

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According to the 2012 EAA National Sales Compensation & Practices Survey, which surveyed nearly 800 organizations throughout the United States, employers in Northeast Ohio pay International Sales Managers more than other regions of the United States. Similarly, employers in the Great Lakes region (which includes Ohio) also report paying higher compensation for International Sales Managers when compared to organizations in other regions of the United States.

Specifically the survey showed that employers in Northeast Ohio reported median total compensation of $165,000 for International Sales Managers. This median total compensation was significantly higher than the national median of $128,323.

Total Compensation for International Sales Manager

 

National

Northeast Ohio

Great Lakes Region

10th Percentile

$85,905

$103,000

$88,548

25th Percentile

$102,115

$116,780

$102,750

Median

$128,323

$165,000

$139,722

75th Percentile

$180,552

$184,868

$190,000

90th Percentile

$216,664

$199,155

$221,645

Source: 2012 EAA National Sales Compensation & Practices Survey

The data seems to suggest that employers in Northeast Ohio, as well as those in the general Great Lakes Region, pay their International Sales Managers more than employers in other regions of the U.S.

In general, international competencies are highly in-demand, and employers in our region seem to be paying a premium for global skills - at least for international sales management talent.

For more information about ERC's Surveys click here. Also, ERC members can now access international resources and pay data through our HR Help Desk. Email hrhelp@yourerc.com for more information about these new resources!

Administrative Jobs Experience Slower Salary Movement

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According to the 2012 EAA National Wage & Salary Survey, though administrative jobs experienced salary increases of at least 2% from 2011, most administrative jobs in the survey continue to see slower salary movement compared to other jobs.

Median salaries for Receptionist, Telephone Operator/Receptionist/Secretary, and Administrative Assistant to CEO jobs increased 2% from 2011 to 2012. Administrative Assistants of varying levels saw higher increases of 3%-5%.

Median Salaries for Administrative Jobs

 

2011

2012

% Change

Receptionist

$27,860

$28,474

2%

Telephone Operator/Receptionist/Secretary

$29,095

$29,587

2%

Administrative Assistant I

$31,517

$32,686

4%

Administrative Assistant II

$36,703

$37,831

3%

Administrative Assistant III

$42,380

$44,293

5%

Administrative Assistant to CEO

$47,879

$48,688

2%

Source: 2012 EAA National Wage & Salary Survey

The data from the survey is in line with other trends which suggest that administrative job salaries are rising, but at a slower rate than other jobs which are in higher demand.

 To participate or purchase ERC's Salary & Wage Surveys which report data from Northeast Ohio employers on over 400 jobs, click here.

Are Execs Receiving the Perks They Used To?

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Executive benefits and perks have undergone quite a bit of change since 2007 and several studies suggest that executives are no longer receiving the breadth of perks they used to several years ago.

A 2011 study conducted by CompData, for example, found a decline in the percentage of companies offering company cars, annual physical exams, and voluntary deferred compensation programs to CEOs from 2009 to 2011.

ERC's data shows similar trends. In analyzing changes to executive perks in our Executive Compensation Survey since 2007, several changes have been noted. Fewer organizations seem to be providing these to their executives, and particularly their CEOs.

Percent of employers offering benefits and perks to CEOs: 2007-2011 comparison

 

2007

2011

 

Mfg

NMfg

Mfg

NMfg

Company cars (company owned or leased)

50.0%

38.1%

43.0%

29.4%

Club memberships (business, social and/or country club)

34.4%

29.5%

28.8%

23.3%

Periodic physical exams

17.9%

12.3%

13.9%

8.1%

Special retirement plans (supplemental pension and/or thrift)

21.1%

23.1%

17.7%

18.7%

Additional life insurance

42.2%

32.2%

38.8%

27.1%

All-expense medical insurance

16.8%

17.5%

13.5%

13.0%

Estate planning

13.7%

7.5%

10.9%

4.6%

Legal counseling

11.8%

6.1%

9.5%

3.7%

Income tax preparation

25.2%

6.1%

16.8%

10.7%

Mfg = Manufacturing employers
NMfg = Non-manufacturing employers

Source: 2007 & 2011 EAA National Executive Compensation Surveys

Does this trend mean that employers should stop providing executive perks? Not necessarily.

Extra benefits and perks should be considered as part of the total compensation package. Perks in lieu of a higher base salary, for example, may be quite beneficial. Similarly, depending on the executive, it may be important to offer some of these perks in order to acquire the right talent.

Also, some benefits may be important to offer for your business' operations. For example, some organizations find it important to provide annual physical exams to their executives to ensure that their leaders are healthy and equipped for the job. Others find that their executives need to be provided with a vehicle or automobile benefits for ease of travel.

The decision to offer executive perks comes down to a few basic questions:

  • Does your organization need to provide special benefits or perks in order to attract executive talent? If so, which ones are most important or necessary?
  • Are other employers in your industry or size offering certain benefits or perks?
  • Can your organization afford to provide special benefits or perks?
  • Which executives will qualify for special benefits or perks?
  • What is the risk in not providing certain benefits and perks?

Finally, it's important to consider that executive positions can be demanding and extra benefits and perks can help increase productivity and support the executive.

To participate in ERC Compensation & Benefits Surveys, which reports executive compensation, benefits, and perks provided by employers, including those in Northeast Ohio, please click here.

Skilled Manufacturing Jobs See Higher Salary Increases than Unskilled

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Pay for skilled manufacturing jobs seems to be rising, according to a 2012 national survey released by ERC. Based on the 2012 EAA National Wage & Salary Survey, several skilled manufacturing jobs (namely supervision) saw higher salary increases than unskilled manufacturing jobs.

Median Salaries for Production Supervisors

 

2011

2012

% Change

Production Supervisor - Unskilled Operation

$50,447

$47,649

-6%

Production Supervisor - Semi-skilled Operation

$53,053

$54,485

3%

Production Supervisor - Skilled Operation

$57,842

$60,982

5%

Trades Supervisor - Production Support

$68,332

$70,184

3%

Source: 2012 EAA National Wage & Salary Survey

The survey reports a decrease in median salary from 2011 for production supervisors of unskilled operations, yet positive increases in median salaries from 2011 for production supervisors of semi-skilled, skilled, and trade operations. In fact, these increases were above the average salary increase of 2.8% in 2011. Employers reported the highest percentage increase (5%) in median salary for production supervisors of skilled operations.

Other data in the survey shows that several unskilled manufacturing jobs, including production workers and laborers, reported modest if any salary increases from 2011. These findings are consistent with local pay trends which show relatively stagnant wages for some manufacturing jobs, particularly unskilled ones.

The findings of this survey are consistent with other local and national trends we've seen, suggesting that skilled manufacturing jobs are in high demand and pay is beginning to reflect this demand. Pay is often a factor influencing retention for employees in the manufacturing sector, so providing above-average or competitive pay rates for manufacturing jobs will be crucial for employers seeking to attract and retain highly skilled manufacturing workers.

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 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.

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

Most Maintenance Jobs See Pay Increases

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According to the 2011 ERC Wage Survey and the 2011 ERC Salary Survey, the majority of maintenance jobs surveyed have experienced pay increases since 2009. Both hourly and salaried maintenance jobs showed consistent rises in pay from 2009.

Maintenance Jobs with Hourly Rate or Salary Increases from 2009
Hourly Jobs

 

2009

2010

2011

Janitor/Custodian

$11.76

$11.85

$12.68

Machine Maintenance Mechanic - Senior

$20.02

$19.53

$21.00

Machine Maintenance Mechanic - Junior

$17.50

$18.21

$20.40

Maintenance Electrician - Senior

$21.64

$22.30

$22.77

Maintenance Electrician - Junior

$18.40

$18.66

$25.68

Maintenance Worker - General

$16.49

$17.90

$18.59

Source: 2011 ERC Wage Survey

Salaried Jobs

 

2009

2010

2011

Facility Maintenance Manager

$62,980

$65,046

$70,835

General Supervisor – Maintenance/Trades Function

$48,969

$63,247

$66,897

Supervisor – Custodial Services

$33,262

$33,434

$45,464

Supervisor – General Maintenance

$54,216

$55,828

$59,030

Source: 2011 ERC Salary Survey

For more information about our ERC Wage Surveys, please click here, or for more information about ERC Salary Surveys, please click here

Some HR Management Jobs See Salary Increases

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The results of the 2011 ERC Salary Survey show the rising of some HR management salaries – mainly those specializing in a certain aspect of HR such as compensation, training, and recruiting.

According to the survey, the median salary for a Compensation/Benefits Manager rose 32% from 2009 and 12% from 2010. Additionally, the median salary for a Training Manager increased 24% from 2009 and 3% from 2010. Recruiting Managers also experienced a modest increase of nearly 7% from 2009.

The survey, however, shows that salaries for HR Managers continue to remain flat. The median salary for HR Managers showed no significant change from 2009 or 2010, remaining around $65,013.

Median HR Management Salaries

Additional Resources

More info about ERC Salary Surveys: click here
Other compensation surveys: click here