4 Compensation Topics You Can't Afford to Overlook

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4 Compensation Topics You Can't Afford to Overlook

When the word "compensation" is brought up in conversation, most people assume it just refers to what a person is paid. However, to the Human Resource community, the word compensation is a much more complex topic.

We spoke with Sue Bailey, ERC’s Senior Consultant, Compensation & Benefits, about what HR professionals should look at when it comes to the top compensation topics.
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Pay Period Leap Year: Handling 27 Pay Periods

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Pay Period Leap Year: Handling 27 Pay Periods

If the question of, “How will you handle 27 pay periods,” doesn’t sound familiar to you, don’t panic. It may not apply to your organization, or if it does, you still have options. 

If your pay cycle is either weekly or bi-weekly, there is a good chance that some years will include an extra payday, although there is some variation to this rule based on the way the calendar falls and the day on which your organization pays employees.

It is also important to note that the extra payday only creates issues for exempt employees who, unlike their non-exempt counterparts who are paid based on hours worked, receive an equal portion of their annual salary each paycheck.

Finally, before agonizing over how to manage an extra pay period, employers should review any and all documents related to the terms of employment that are currently in place, e.g. offer letters or collective bargaining agreements. Specific wording or clauses in these types of documents may actually be the determining factor for which methods remain on the table.

How to handle the "pay period leap year"

Interestingly, despite the variation in the parameters listed above, one area where there is more consistency among local employers is in how they choose to address the pay period leap year.

When asked specifically how they handle years that have 27 versus 26 payrolls for exempt employees, 81% of respondents to 2014 ERC’s Payroll Practices Survey indicate that they “pay as usual.” This overwhelming response of essentially doing nothing has remained true since 2011 when the survey was first administered. Figure 1 below illustrates the other options employers may turn to:

The “other” category elicited several interesting responses, with more than one employer explaining that while in the past they had chosen to divide pay by 27 and adjust benefit deductions, moving forward they would not be making that same choice. They noted that although logistically this change worked smoothly, employees were displeased with a smaller bi-weekly paycheck and overall morale was negatively impacted.

Other considerations

Although these particular employers did not experience any compliance related issues, employers who choose to divide paychecks by 27 should be aware of any lower wage workers on an annual salary. If the new math puts their pay below the FLSA threshold, this would in fact alter their FLSA exempt status and require the employer to pay overtime, etc to these employees for one year.

Another alternative option, although not at all common, was to simply reduce the final paycheck of the year.

As legal experts point out, this final option can also be dangerous in terms of FLSA as well as state minimum wage laws for any salaried non-exempt employees that might fall under the minimum hourly wage during the final reduced pay period—not to mention the likely backlash and drop in employee morale that could accompany a significantly reduced final holiday paycheck.

Ultimately, no matter which option an organization selects to accommodate a 27 pay period schedule, the key is communication with employees. Clearly if any paycheck along the way is going to be smaller, employees will need to know in advance, but even for employers that do nothing this year, communication is still important. For these employees, an extra paycheck could mean as much as a 4% raise, a raise that will be confined only to that year. So whether your payroll budget is staying the same or hitting an all time high with 4% raises, making sure everyone is on the same page will allow for a much smoother and easier transition into the years beyond.

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

5 Key Types of Executive Compensation

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5 Key Types of Executive Compensation

Executive compensation plans come in a wide variety of shapes and sizes depending on what business objectives the organization is aiming to achieve, the desired complexity of the plans, the demographics of the organization in terms of size, revenue, and industry/sector, as well as the various legal stipulations that apply to executive pay.

However, many of the basic structural elements of executive compensation are more constant, with variations occurring in terms of strategy and implementation. Below, we provide examples of several of these key types of pay based on the results of the 2014 EAA National Executive Compensation Survey.
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Will New DOL Regulations for Direct Care Workers Drive Changes in Pay?

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Here in Northeast Ohio, it is well known that the healthcare industry is by far the largest in the region, employing thousands upon thousands of workers in a wide range of positions (and salaries). One position type that has made headlines in recent weeks is the “direct care worker."

Although not typically the subject of high profile news stories these employees (e.g. home health aides) will soon be seeing a significant change in how they are paid. Nationally, the Bureau of Labor Statistics (BLS) suggests that approximately 1.9 million workers across the country would be re-classified by the Department of Labor (DOL) under the Fair Labor Standards Act (FLSA) and this could mean big changes for the fifteen-thousand or so home health aides employed in the immediate area.
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Integrating Incentive Pay into Your Performance Management Process

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When structuring an effective Performance Management process at any organization, including some type of incentive to help drive performance is a key step. Particularly in recent years, large financial incentives are not always feasible, nor are they always found to be the most impactful driver for incentivizing employees. Nonetheless, a consistently strong majority of organizations both across the region and nationally, tie pay to performance either directly or indirectly.

For a closer look at how organizations in Northeast Ohio are implementing these financially based incentives, we turn to the 2013 ERC Pay Adjustment & Incentive Practices Survey.

Types of Incentives

Annual bonus plans remain the most common type of incentive pay, with individual incentives and profit-sharing filling the second spot, depending upon the employee group being compensated. Other less common incentives reported include, longevity service awards, retirement-based profit sharing, and executive performance bonus plans for select executive level positions.
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4 Important Guidelines for Giving Pay Increases

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4 Important Guidelines for Giving Pay Increases

Pay increases are an important part of a compensation system as they aim to reward employees based on their performance achievements, but your organization should make sure you follow these four important guidelines when administering pay increases.

1. Base pay increases on your performance management and goal setting processes.

Pay increase practices should be aligned with not only your organizational culture and best practices for your organizational size and industry, but they also should align with your organization's performance management and goal setting processes to make sure that variations in employee performance are measured accurately and fairly rewarded.
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Pay Trends Emerge in Northeast Ohio

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The 2013 ERC Salary & Wage Surveys report salary data for 9,000+ individual employees from 200+ participating organizations and hourly wage data for 7,500+ individuals from 150+ organizations respectively. This unique local market data is a key resource for employers in the local business community looking to attract and retain top talent in to their organizations in Northeast Ohio.

While pay rates from these annual surveys remained fairly stable overall, certain industries did see more positive patterns of growth than others. Industry specific growth was strong in IT, Science/Research & Development, Customer Service/Sales, Purchasing/Distribution, and Business & Administrative Support. Each of these areas saw their average median salary grow by 4% or more overall from 2012 to 2013.
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Keeping Pay Adjustments In Perspective

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In a 2013 overview of the state of compensation, Steve Bruce, contributor to HR Daily Advisor, makes a less than rosy comparison of where businesses stand today versus where a full economic recovery would have put businesses in terms of their compensation options. Employment overall is up and voluntary separations are beginning to increase, but for businesses looking to attract and retain top performing employees, rewarding these individuals through traditional compensation methods remains a challenge.

With merit increases averaging right around 3% according to World at Work, and several local surveys also pointing to the 3% mark, Bruce suggests that in fact, 3% may be the new norm. While it may not seem like much on paper, it is worth noting that 2012 was the first post-recession year that pay adjustments, merit based or not, hit that 3% threshold. At the macro level, 2012 also saw the percentage of Northeast Ohio organizations predicting at least some pay increase to 89%, a significant recovery in comparison to the all time low of 45% in 2009 (2012 ERC Pay Adjustment & Incentive Practices Survey).
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