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

How to Pay Your Executives

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Executive pay is very different from other compensation practices you administer, involving greater pay-mix complexity, more components, and consideration of various business and legal factors. Here are executive compensation basics that you need to know to drive your business results as well as attract and retain key executive talent.

Create an executive compensation philosophy

Establishing and communicating a formal compensation philosophy for executives is an important part of an executive compensation program. This philosophy should clearly explain the principles on which executive compensation decisions are based and how executive pay programs are driving the organization's needs and strategic goals (Lupo, 2010). Comprehensive documentation of rationale supporting your organization's executive compensation programs is also an important part of your program. Additionally, this philosophy may define who qualifies for executive compensation (typically only the highest paid executives).

Invest time in executive compensation program design

Executive compensation should start with your business's goals and objectives. Define what the strategic objectives of the business are, how the company will define success in 3-5 years, the kind of talent needed to support its business strategy, and how long you want to retain the talent. This strategy will help your organization make decisions on the other elements of executive compensation design including pay mix, performance measures, and pay position relative to the market (Hosken & Laddin, 2011).

Additionally, identify taxes, governmental regulations, and industry trends that affect executives' compensation. All of these issues should play a role in how and what you decide to pay your leaders.

Gather executive compensation market data

Many organizations use market data to establish executive compensation. Choose surveys that are similar in revenue size and industry and whose participants reflect your peer group. Peer groups may be those companies similar in revenue, market, number of employees, or performance. Peer groups could also be companies that you compete with in your industry or for executive talent.

In addition to salary surveys, ERI is a strong data source to use for executive compensation decisions and contains specialized industry data. ERI's data meets expert witness reliability standards and is cited in Sarbanes-Oxley proxy disclosures as a data source used to determine executive compensation. Plus, ERI is relied upon by many private corporations smaller in size. You can also compare your positions to data from the most relevant or comparable public firms using proxy statements.

If your organization is a small to medium sized private company, however, be cautious when comparing your executives' compensation, benefits, and perquisites to only readily available information about public company executives. Only a small percentage of U.S. companies are public and these figures are usually much larger than what executives actually earn at similarly sized organizations (Chief Executive, 2011). For example, in one of our latest surveys, a CEO's median base salary was reported at $203,000 and median bonus was reported at $63,200, which are far lower than figures for much larger public organizations.

Benchmark types of executive compensation pay

Typically five types of pay should be benchmarked to obtain a true picture of how executives should be paid. These include base salary, short-term incentives, long-term incentives, perquisites, and benefits. As a result, a solid survey or source of compensation data should include at least the following information: base salaries, bonuses, total compensation, benefits, and perquisites.  Most organizations that we serve use bonuses (tied to organizational profitability/performance and individual performance) and base salaries for executive compensation.

When analyzing pay, revenue is usually the most common factor used to determine executive compensation because executive pay is directly related to size and revenue of an organization. Using industry can also be helpful, but look first at the revenue breakout. If the survey is smaller in scope, be sure to look at broader industry definitions for the most reliable results. These breakouts will tend to have more data.

Anticipate executive salary increases

Currently, executive salary increases and adjustments have been projected lower than past years. Traditionally, executive increases hovered around 4%, however, most surveys - including those conducted by Mercer, WorldatWork, and ERC show that executives can expect increases of around 3% in 2012. These projected increases, however, are slightly higher than the 2.8-2.9% increases seen since 2009, but do vary according to the position.

Keep in mind that making pay decisions (such as increases) for executives involves considering how those decisions will impact your organization's costs down the road.  A 4% increase for an executive translates to a much larger cost than a 4% increase for a factory employee.

These are just some of the basics of executive compensation that you can use to help determine how and what to pay your leaders. Keep in mind that managing executive pay can be very complicated, depending on your business, objectives, needs and peer group, so be sure to seek expertise in this area or credible market data on executive compensation practices to help you make good business decisions.

Additional Resources

ERC Membership

Members of ERC receive access to national and local salary, pay, and benefits survey data in addition the ERI's Salary Assessor and global pay information accessible through our HR Help Desk (hrhelp@yourerc.com). More info

Compensation 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, executive compensation, and variable pay programs. For more information, click here.

Sources:

  • Hosken, E. & Laddin, D. (2011). Best Practices for Executive Compensation. WorldatWork Workspan.
  • Lupo, P. (2010). Top 10 Considerations for Establishing an Executive Compensation Philosophy. Pearl Meyer & Partners.
  • ChiefExecutive.net (2011). Media Wrong About CEO Compensation.

7 Common Compensation Questions

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7 Common Compensation Questions

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.

1. 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.

2. 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.

3. 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. 

4. 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.

5. How should I evaluate compensation data?

Things to look for when evaluating compensation survey data:

  1. First, you will want to make certain you utilize credible, employer reported data from robust and reliable sources.
  2. Second, you'll want to research who participated in the survey and what geographic region the survey represents.
  3. Third, make sure you also know when the salary survey data is effective so that you make appropriate aging adjustments to ensure that you are comparing data according to consistent time periods.
  4. 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.

6. 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.

7. 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.

Here are things you can do to make sure employees are aware of the steps your organization takes to keep compensation competitive:

  • 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.

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

Survey Shows National Salary Trends for HR Jobs

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According to the 2012 EAA National Wage & Salary Survey, salaries rose modestly for HR professionals across the U.S. in 2011. The survey reports that HR Generalists showed the highest salary increase of 5% from 2011 and HR Assistants experienced the second highest salary increase of 4% from 2011.

Meanwhile, higher level HR professionals, such as Vice Presidents, Directors, and Managers showed more modest salary increases from 2011 of 1-2%.

The salaries for HR professionals reflected in this survey are consistent with other local and national compensation survey findings. In general, there has been less salary growth for many generalist-type HR functions in the years preceding 2012, as the data shows.  Nonetheless, national and local compensation surveys, including those conducted by ERC, continue to show that there has been more salary growth for specialist HR functions including compensation, training, organizational development, and staffing.

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.

2012 Compliance Guide

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We’ve developed an easy guide summarizing what your organization needs to know to stay compliant in 2012. The guide includes a summary of several regulations that take effect as well as important legal issues on the horizon.

Regulations that Take Effect

Below are several major regulations and initiatives will took effect during the first few months of 2012.

Legal/HR Issue

Description of Regulation

Effective Date

2012 Income Tax Withholding Tables

Provides income tax withholding tables for 2012 here.

Immediately

Unemployment Benefits

Extends unemployment benefits temporarily through February 29, 2012.

Immediately

Tax Cuts

Extends current tax cuts temporarily through February 29, 2012.

Payroll system changes must be made by January 31, 2012

Social Security Withholding

Continues reduction in withholding rate to 4.2% (from 6.2%) temporarily through February 29, 2012. If an employer over-withholds in January, they need to make offsetting adjustments to employees’ pay by March 31, 2012.

January 1, 2012

 

Social Security Wage Base

Increases the Social Security Old Age Survivor's and Disability Insurance (OASDI) taxable wage base for 2012 from $106,800 to $110,100.

January 1, 2012

Minimum Wage

 

Raises minimum wage in Ohio to $7.70 per hour for non-tipped employees and $3.85 per hour for tipped employees.

January 1, 2012

Mileage Rates

Continues standard mileage rate of 55.5 cents per mile for business miles driven and 14 cents per mile driven in service of charitable organizations. Raises standard mileage rate to 23 cents per mile for medical or moving purposes.

January 1, 2012

Retirement Plan Limits

Raises the 2012 limit on the exclusion for elective deferrals in 401(k), 403(b), and 457(e) plans to $17,000, up from $16,500. For changes to other pension plan limits, click here.

January 1, 2012

W-2 Benefits Reporting

 

Requires employers who have an employer-sponsored group health plan to report the cost of coverage under their plan. This requirement goes into effect for some employers this year.

January 1, 2012

Health Benefits Summaries

Requires group health plan sponsors to create and distribute a Uniform Summary of Benefits and Coverage and Uniform Glossary.

Extended from March 23, 2012; pending notice of new effective date

NLRB Posting Notice

Extends deadline for posting notice regarding employees rights under the National Labor Relations Act.

April 30, 2012

 

Legal Issues on the Horizon

The following table summarizes several major legal issues that could lead to greater scrutiny and more regulations for employers in 2012.

Legal/HR Issue

Description of Issue

Tax cuts and job creation

Congress will determine whether to extend tax cuts through the rest of 2012 by late February. These cuts, along with the Jobs Bill which has been proposed, will aim to expand job creation and support businesses.

Constitutionality of health care reform

In 2012, the Supreme Court will be ruling on whether the health care reform law is constitutional due to conflicting rulings from lower courts, which could affect a number of provisions that take effect in 2013 and 2014.

Protection of unemployed individuals

Bills have been proposed at both state and federal levels to protect unemployed individuals from discrimination in the hiring process, and may gain ground in 2012.

Protection from retaliation

There has been notable interest in ensuring that employees are protected from employer retaliation when they file a complaint or cooperate with an investigation under federal law.

Improving hiring of disabled workers

The government will continue proactive efforts and attempts to improve the hiring of disabled workers and reduce discrimination against the disabled.

Clarification on FLSA and classification

The government will seek revisions to the FLSA for certain jobs, most notably workers who provide in-home services to the elderly and infirm. It will also continue to regulate misclassification of employees.

Retirement plan reform

The government is interested in ensuring that employees are saving adequately for their retirement and are exploring a number of options including additional disclosures, making investment advice more available, implementing automatic contributions, and restructuring tax deductions.

Regulating use of cell phone while driving

This past fall, OSHA and the Department of Transportation began an initiative to combat the leading cause of worker fatalities – motor vehicle crashes – and reduce distracted driving. Condoning/incenting texting while driving is in violation of OSHA, and use of a cell phone while driving may soon be as well.

User-friendly applications

The Department of Labor is leading a number of efforts to create user-friendly applications, interfaces, and tools for employers, job seekers, and other users to more easily use the information it provides.

E-Verify

In 2012, more states will likely require the use of E-Verify to determine employment eligibility.

If your organization needs more assistance, guidance, or detail with regard to these or other compliance-related issues, here are several additional resources and services, provided by ERC, which you can consult:

  • HR University: A series of workshops for HR professionals which includes a session on Employment Law Fundamentals and compliance best practices.
  • Supervisory Series: A series of workshops for supervisors which includes a session on Employment Law that provides supervisors with tools to help them maintain compliance.
  • HR Help Desk: Contact hrhelp@yourerc.com to ask any HR or compliance-related question and receive answers, guidance, and research. Service offered to ERC members only.

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

Fast facts about Section 408(b)(2)

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Section 408(b)(2), a 2012 regulation for retirement plan fiduciaries enacted by the Department of Labor, was effective Jan. 1, 2012. Here are some fast facts about 408(b)(2):

  • It affects all retirement plan fiduciaries, including plan sponsors and investment committee members.
  • It requires plan sponsors to understand all fees and expenses associated with their retirement plan.
  • It requires plan sponsors to have a contract or agreement, in writing, with their service providers disclosing all fees associated with your retirement plan, and it must be reasonable.
  • It requires plan sponsors to make sure services being performed are necessary to establish and operate a qualified plan.
  • It requires plan sponsors to make sure no more than reasonable compensation is paid for services performed, and their fees are competitive within the marketplace.
  • It requires service providers to provide full fee transparency not only to plan sponsors, but also to each plan participant.

Information provided by Oswald Financial.